The SML must go through the market portfolio point since its Beta is
A) 1.
B) .5.
C) 0.
D) -1.

Question

Quizplus · Accepted Answer

The SML is defined as the line that connects the risk-free rate to the market portfolio point, with a slope equal to the market risk premium divided by the market portfolio's volatility (i.e. the market's Beta is 1 by definition). Therefore, only an asset with a Beta of 1 will lie on the SML and pass through the market portfolio point. Choice A is the only option with a Beta of 1.

The SML Must Go Through the Market Portfolio Point Since