What determines the vertical intercept of the security market line?
The vertical intercept of the Security Market Line is determined by the: risk-free interest rate. Refer to the graph above. Which of the three Security Market Lines depicts the situation where investors most dislike risk?
What is the intercept of the security market line?
The SML Graph The risk-free rate, or beta of zero, is located at the y-intercept. The purpose of the graph is to identify the action, or slope, of the market risk premium. In financial terms, this line is a visual representation of the risk-return tradeoff.
What is the security market line quizlet?
The line that reflects the relationship between systematic risk and return available for all risky assets in the capital market at a given time.
What is the slope of the security market line quizlet?
The slope of the SML, which is the difference between the expected return on a market portfolio and the risk-free rate. In other words, it is the reward investors expect to earn for holding a portfolio of beta of 1. The equation of the SML showing the relationship between expected return and beta.
What is the intercept of the security market line SML quizlet?
What is the intercept of the Security Market Line (SML)? The Risk-Free Rate. Two factors determine a stock's total return?
Which of the following is on the horizontal axis of the security market line Mcq?
I. A unique characteristic line is plotted for each security to determine the beta. II. For a characteristic line, the X-axis represents betas for different securities….
| Q. | Which of the following is on the horizontal axis of the Security Market Line? |
|---|---|
| B. | Beta |
| C. | Expected return |
| D. | Required return |
| Answer» b. Beta |
What is the slope of security market line?
Security Market Line Slope The slope of the security market line represents the market risk premium, i.e. the excess return over the market return. The market risk premium compensates for the additional systematic risk associated with the security.
What is security market line in finance?
The security market line (SML) is a line drawn on a chart that serves as a graphical representation of the capital asset pricing model (CAPM). The SML can help to determine whether an investment product would offer a favorable expected return compared to its level of risk.
Which one of the following is the slope of the security market line?
The market risk premium is the slope of the security market line.
What is the slope of the security market line SML?
The slope of the security market line represents the market risk premium, i.e. the excess return over the market return. The market risk premium compensates for the additional systematic risk associated with the security.
What does the security market line depict?
The security market line (SML) is a line drawn on a chart that serves as a graphical representation of the capital asset pricing model (CAPM). The SML can help to determine whether an investment product would offer a favorable expected return compared to its level of risk.
Which of the following is one the horizontal axis of the Security Market Line?
| Q. | Which of the following is on the horizontal axis of the Security Market Line? |
|---|---|
| B. | Beta |
| C. | Expected return |
| D. | Required return |
| Answer» b. Beta |
What is on the horizontal axis of security market line?
We have been Given: Which of the following is on the horizontal axis of the Security Market Line? The correct option is Option No. A, Expected Return. The expected return is the profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR).
Why is the security market line upward sloping?
The SML, which is upward sloping, shows the expected return on an asset for each level of risk. The securities that appear on the left (right) side of the SML are considered undervalued (overvalued).
Is on the horizontal axis of the security market line?
I. A unique characteristic line is plotted for each security to determine the beta. II. For a characteristic line, the X-axis represents betas for different securities….
| Q. | Which of the following is on the horizontal axis of the Security Market Line? |
|---|---|
| A. | Standard deviation |
| B. | Beta |
| C. | Expected return |
| D. | Required return |
How do you find the slope of the security market line?
The formula for plotting the SML is required return = risk-free rate of return + beta (market return – risk-free rate of return).
What is the shape of the security market line?
The larger the level of systematic risk, the larger the expected return for the security is – more risk equals more reward. It is a linear relationship and explains why the security market line is a straight line.
Which one of the following is represented by the slope of the security market line?
The market risk premium is the slope of the security market line.
When graphing the security market line SML Which one of the following statements is correct?
Correct. A security that plots above the security market line (SML) has an expected return higher than the one predicted by the capital asset… See full answer below.
Which of the following is the slope of the security market line?
The market risk premium is the slope of the security market line.
Which of the following is on the horizontal axis of the security market line?
We have been Given: Which of the following is on the horizontal axis of the Security Market Line? The correct option is Option No. A, Expected Return. The expected return is the profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR).
What is the slope of the capital market line?
Sharpe Ratio The slope of a capital market line of a portfolio is its Sharpe Ratio. We know that the greater the returns of a portfolio, the greater the risk. The optimal and the best portfolio is often described as the one that earns the maximum return taking the least amount of risk.
Which of the following is capital market line Mcq?
Explanation: In both 1 and 2, the Capital allocation line of a market portfolio and the Capital allocation line of a risk-free asset is the Capital market line.
Which of the following is on the horizontal axis of the Security Market Line?
We have been Given: Which of the following is on the horizontal axis of the Security Market Line? The correct option is Option No. A, Expected Return. The expected return is the profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR).
Which of the following is on the horizontal axis of the Security Market Line Mcq?
I. A unique characteristic line is plotted for each security to determine the beta. II. For a characteristic line, the X-axis represents betas for different securities….
| Q. | Which of the following is on the horizontal axis of the Security Market Line? |
|---|---|
| B. | Beta |
| C. | Expected return |
| D. | Required return |
| Answer» b. Beta |
Which of the following is Capital Market Line?
Explanation: In both 1 and 2, the Capital allocation line of a market portfolio and the Capital allocation line of a risk-free asset is the Capital market line.
Which of the following is Capital Market Line Mcq?
Explanation: In both 1 and 2, the Capital allocation line of a market portfolio and the Capital allocation line of a risk-free asset is the Capital market line.