{"id":261794,"date":"2025-07-20T08:36:11","date_gmt":"2025-07-20T08:36:11","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=261794"},"modified":"2025-07-20T08:36:14","modified_gmt":"2025-07-20T08:36:14","slug":"the-__-is-a-positively-sloped-linear-function-that-plots-securities-expected-returns-against-their-betas","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/07\/20\/the-__-is-a-positively-sloped-linear-function-that-plots-securities-expected-returns-against-their-betas\/","title":{"rendered":"The __ is a positively sloped linear function that plots securities&#8217; expected returns against their betas"},"content":{"rendered":"\n<p>The <strong>__<\/strong> is a positively sloped linear function that plots securities&#8217; expected returns against their betas. <\/p>\n\n\n\n<p>A) reward-to-risk matrix B) portfolio weight graph C) normal distribution D) security market line E) market real returns<\/p>\n\n\n\n<p><strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\">The correct answer and explanation is:<\/mark><\/strong><\/p>\n\n\n\n<p>The correct answer is <strong>D) security market line<\/strong>.<\/p>\n\n\n\n<p>The <strong>Security Market Line (SML)<\/strong> represents the relationship between the expected return of a security and its systematic risk, as measured by beta. In the context of the Capital Asset Pricing Model (CAPM), the SML is a graphical representation of the market&#8217;s risk-return tradeoff. The x-axis of the SML plots the <strong>beta<\/strong> of the security, which reflects its sensitivity to market movements, while the y-axis shows the <strong>expected return<\/strong> of the security.<\/p>\n\n\n\n<p>The SML is positively sloped, indicating that as the beta (or risk) of a security increases, the expected return also increases. This positive slope reflects the risk-return tradeoff, meaning investors expect a higher return for taking on more risk. The intercept of the SML with the y-axis represents the <strong>risk-free rate<\/strong>, the return on a risk-free asset like government bonds. The slope of the line is determined by the <strong>market risk premium<\/strong>, which is the difference between the expected market return and the risk-free rate.<\/p>\n\n\n\n<p>For example, if a security has a higher beta, implying that it is more sensitive to market fluctuations, investors will expect a higher return to compensate for the increased risk. On the other hand, a security with a lower beta would be expected to offer a lower return, as it is less risky.<\/p>\n\n\n\n<p>In summary, the Security Market Line is a crucial concept in modern portfolio theory and the CAPM. It helps investors determine whether a security offers an adequate return for its level of systematic risk, thereby aiding in portfolio optimization and decision-making based on risk and return expectations.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The __ is a positively sloped linear function that plots securities&#8217; expected returns against their betas. A) reward-to-risk matrix B) portfolio weight graph C) normal distribution D) security market line E) market real returns The correct answer and explanation is: The correct answer is D) security market line. The Security Market Line (SML) represents the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-261794","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/261794","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=261794"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/261794\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=261794"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=261794"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=261794"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}