Question

The Security Market Line

Group of answer choices

usually has a negative slope.

shows the highest historical return earned by an asset.

is a minimum standard of return for an asset.

is calculated by taking the risk-free rate of return and multiplying it by beta.

Answer #1

The Correct option is D

Security Market line is a Graphical figure of the Capital asset pricing Model equation, The SML Line starts from the Y-Axis as the difference between the Origin and the Y-axis is the risk free return that an investor gets and it moves to upward direction when the beta is increased as it shows that an investor would get higher return if they invest in securities with higher beta.

The equation of SML Line is

Expected return = Rf + B ( Rm - Rf)

where, Rf is risk free return,

B is beta

Rm is market return

Which of the following is not true about the Capital Market
Line, the Security Market Line, and the Security Characteristic
Line?
Multiple Choice CML is the line that goes through the risk-free
asset and the optimal risky portfolio
SML has beta on the x-axis
The y-axis for SCL has the excess return on the market
The slope of SCL is beta

The slope of the Security Market Line is equal to
A) beta.
B) the risk-free interest rate.
C) the equity premium.
D) none of the above

The beta of any portfolio can be computed as the
a. slope of the security market line
b. sum of the betas for each asset held in the portfolio divided
by the number of assets in the portfolio.
c. weighted average of the betas for each asset held in the
portfolio.
d. the standard deviation of the expected returns of the
portfolio minus the risk-free rate.

Which of the following statement is FALSE? Group of answer
choices
When using all risky assets available in the market in the
market and the risk-free asset to form portfolio, we find that all
efficient portfolios are on the Capital Market Line (CML).
If the CAPM holds, then all assets will graph on the Security
Market Line (SML).
If an asset graph above the SML, then this asset is under-priced
according to the CAPM.
Portfolios on the Capital Market Line...

The slope of the security market line is indicative of Question
options:
a. the current, relevant risk-free rate
b.the level of investor risk aversion
c. the risk of the individual security or portfolio of
securities being evaluated
dthe current level of inflation

As an analyst you have gathered the following information:
Security
Expected Standard Deviation
Beta
Security 1
25%
1.50
Security 2
15%
1.40
Security 3
20%
1.60
(i) If
the expected market risk premium is 6% and the risk-free rate is
3%, what will be the required rate of return on each of the above
securities, and which of the security has the highest required
return?
(ii) With
respect to the capital asset pricing model, if expected return for
Security 2...

Shifts in the security market line Assume that the risk-free
rate, Upper R Subscript Upper F, is currently 9%, the market
return, r Subscript m, is 13 %, and asset A has a beta, b
Subscript Upper A, of 1.39. a. Use CAPM to estimate the required
return, r Subscript Upper A, on asset A. Which of the following
graphs represents the security market line (SML) and the required
return for asset A? b. Assume that as a result of...

Which of the following is/are TRUE?
I. The security market line can be thought of as
expressing relationships between expected required rates of return
and beta.
II. A stock with a beta of zero would be expected to have a rate of
return equal to the risk-free rate.
III. Assume that the capital asset pricing model holds. Then, a
security whose expected return falls below the SML (security market
line) indicates that the security is undervalued, whereas a
security whose...

Assets X and Y plot on the security market line. Asset X has an
expected return of 12% and a beta of 1.5, and asset Y has an
expected return of 10% and a beta of 1.2. The expected market risk
premium is:
a) 8.70% b) 9.54% c) 10.20% d) 6.67% e) 9.27%

Which of the following statements is incorrect?
Group of answer choices
Left-hand side of the accounting balance sheet shows the book
value of the firm’s assets, based on historical costs.
All the answers are correct except one.
The difference between the expected return on the market and the
risk-free rate is known as the market risk premium.
Current cost of long-term debt is the appropriate cost of debt
for WACC calculations.
The best method to use when estimating risk-free interest...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 22 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago

asked 4 hours ago