CFA Practice Question

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CFA Practice Question

The SML relates ______.

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
Correct Answer: D

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.
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