If the point plots above the line it will provide an expected return above what

# If the point plots above the line it will provide an

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beta values, you will get a point to plot. If the point plots above the line, it will provide an expected return above what the market is providing for the level of risk realized (Point A below). If the point plots below the line, the security may not be a good investment provided the level of risk associated with the security (Point B below). If the point plots on the line, it provides a return appropriate (fair) for the amount of risk realized (Point C below). An increase in inflation would tend to move the SML as a parallel shift up. What is the risk-free rate of the security market line (SML) below? Assume that the beta of the firm is 0.6. E(r) = 4% + B (9.75%) 4.00% The x-intercept is equal to the ______. Beta The y-intercept of the security market line (SML) is equal to the _____. risk-free rate The security market line (SML) graphs the market risk versus the _____. return on the market as a whole If an asset falls on the security market line (SML), it is considered to be _______. (Assume that you have no other information.) a fair investment What is the risk-free rate of the security market line (SML) below? Assume that the beta of the firm is 1.1. 5% If an asset falls below the security market line (SML), it is considered to be ______. (Assume that you have no other information.) A poor investment The slope of the line is equal to the _______. Market risk premium An increase in inflation would tend to move the security market line (SML) as a ______. Parallel shift up A firm with a beta of 0.65 would produce an expected return of _________. Assume that the security market line (SML) is equal to 3% + B (8%). 8.20% What is the risk-free rate of the security market line (SML) below? Assume that the beta of the firm is 0.6. E(r) = 4% + B (9.75%) 4.00%  #### You've reached the end of your free preview.

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