What is the intercept on the security market line?
The intercept of the security market line (SML) is the risk-free rate and the slope is the market risk premium. The relationship between the risk and return described by the SML is the Capital Asset Pricing Model (CAPM).
What is the intercept of the security market line SML )? Quizlet?
If investors are risk AVERSE, it is reasonable to assume that the risk premium for the Stock market will be? What is the intercept of the Security Market Line (SML)? The Risk-Free Rate. Two factors determine a stock’s total return?
What is the slope of the security market line SML 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. Capital asset pricing model (CAPM)
Which of the following is the slope of the security market line?
The market risk premium is the slope of the security market line.
How do you read a security market line?
The two-dimensional correlation between expected return and beta can be calculated through the CAPM formula and expressed graphically through a security market line, or SML. Any security plotted above the SML is interpreted as undervalued. A security below the line is overvalued.
How do I find my security market line?
The SML can help to determine whether an investment product would offer a favorable expected return compared to its level of risk. The formula for plotting the SML is required return = risk-free rate of return + beta (market return – risk-free rate of return).
How do we calculate the expected return on a security quizlet?
Expected return on a security is equal to the sum of the possible returns multiplied by their probabilities.
Why can Diversification not eliminate all risk quizlet?
Diversification can eliminate nonsystematic risk, but not systematic risk. Why can diversification not eliminate all risk? Common factors affect most stocks in a similar fashion.
Which two factors determine a stock’s total return?
It factors in capital gains and dividends to measure the overall returns an investor earns from a stock.
What does the market line determine quizlet?
The security market line is positively sloped line displaying the relationship between expected return and beta. … It tells us that the expected return depends on the pure time value of money (Rf), the market risk premium E(Rm)-Rf, and the beta for the asset (Bi) relative to the average asset.
Which of the following are examples of securities?
Stocks, bonds, preferred shares, and ETFs are among the most common examples of marketable securities. Money market instruments, futures, options, and hedge fund investments can also be marketable securities.
What is unsystematic risk quizlet?
Unsystematic Risk. The type of uncertainty that comes with the company or industry you invest in. Diversification.