The security market line shows the relationship between A. Expected return and standard deviation B. Expected return and beta C. Standard deviation and beta D. Correlation and standard deviation E. Systematic risk and unsystematic risk

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Business

Josephine Russell

13 May, 15:18

The security market line shows the relationship between A. Expected return and standard deviation B. Expected return and beta C. Standard deviation and beta D. Correlation and standard deviation E. Systematic risk and unsystematic risk

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Aniyah Graham · Answer 1

B. Expected Return and Beta

Explanation:

The security market line displays the expected return of an individual asset as a function of it systematic risk (the diversifiable risk) as identified by beta if an asset is correctly priced it lies on the SML and if it lies above the SML it is undervalued because they yield a higher return for a given amount of risk and if it lies below the SML it is overvalued because for a given amount of risk it yield a lower return.