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Portfolio Management MCQ - Portfolio Management Section 1

56 The security market line’s intercept on the y-axis is most likely to be:

The SML’s intercept on the y-axis is the risk free rate.

57 The security market line’s slope is most likely to be:

The SML’s slope is the market risk premium.

58 Correctly priced individual securities are most likely to plot on which of the following lines?

Correctly priced securities will plot on the SML. Overpriced securities will plot below the SML

59 Under CAPM, the market portfolio should ideally consist of all:

Theoretically, the market portfolio includes all risky assets. However, not all assets are tradable, and not all tradable assets are investable.

60 Which of the following is most likely to be the primary determinant of expected return of an individual asset in the capital asset pricing model?

The CAPM shows that the primary determinant of expected return for an individual’s asset is its beta, or how well the asset correlates with the market.

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Question:

Correctly priced individual securities are most likely to plot on which of the following lines?

A. Capital allocation line.
B. Capital market line.
C. Security market line.

Correct answer: C

Explanation:

Correctly priced securities will plot on the SML. Overpriced securities will plot below the SML

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