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Basic Question 1 of 11
The SML relates ______.
B. expected return of securities to expected return of portfolios
C. efficient sets of portfolios to the risk-free rate
D. expected return to beta
E. standard deviation to risk
A. expected return to standard deviation
B. expected return of securities to expected return of portfolios
C. efficient sets of portfolios to the risk-free rate
D. expected return to beta
E. standard deviation to risk
User Contributed Comments 3
| User | Comment |
|---|---|
| mattg | SML relates risk (measured by beta) to expected return |
| jpducros | systematic risk I would say...not total risk |
| khalifa92 | @ jpducros you're mistaken. the security market line applies to any security, efficient or not. total risk and systematic are equal to ONLY for efficient PORTFOLIOS because those portfolios have no diversifiable risk remaining. don't mix the two things. |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
calculate and interpret the expected return of an asset using the CAPM
CFA® 2024 Level I Curriculum, Volume 2, Module 2.