5. the capital market line (cml) represents:\na. the relationship between expected return and systematic…

5. the capital market line (cml) represents:\na. the relationship between expected return and systematic risk (beta)\nb. the combination of risk - free assets and efficient portfolios\nc. the market equilibrium between demand and supply of securities\nd. the pricing of risky assets using their betas\n6. the security market line (sml) differs from the cml because:\na. it uses total risk instead of systematic risk\nb. it applies only to individual securities, not portfolios\nc. it measures return as a function of total standard deviation\nd. it excludes the risk - free rate\n7. the slope of the security market line represents the:\na. beta coefficient\nb. risk - free rate\nc. market risk premium\nd. expected return of the market

5. the capital market line (cml) represents:\na. the relationship between expected return and systematic risk (beta)\nb. the combination of risk - free assets and efficient portfolios\nc. the market equilibrium between demand and supply of securities\nd. the pricing of risky assets using their betas\n6. the security market line (sml) differs from the cml because:\na. it uses total risk instead of systematic risk\nb. it applies only to individual securities, not portfolios\nc. it measures return as a function of total standard deviation\nd. it excludes the risk - free rate\n7. the slope of the security market line represents the:\na. beta coefficient\nb. risk - free rate\nc. market risk premium\nd. expected return of the market

Answer

Brief Explanations:

  • Question 5: The Capital Market Line (CML) is a line from the risk - free asset through the market portfolio (an efficient portfolio). It represents the combination of risk - free assets and efficient portfolios.
  • Question 6: The Security Market Line (SML) uses systematic risk (beta) while the CML uses total risk (standard deviation). The SML applies to both individual securities and portfolios. It does not exclude the risk - free rate.
  • Question 7: The equation of the Security Market Line is (R_i=R_f+\beta_i(R_m - R_f)), where ((R_m - R_f)) is the market risk premium and it is the slope of the SML.

Answer:

  1. B. The combination of risk - free assets and efficient portfolios
  2. None of the options are correct. The SML uses systematic risk (beta) and applies to both individual securities and portfolios and does not exclude the risk - free rate. The CML uses total risk (standard deviation).
  3. C. Market risk premium