Respuesta :
The market risk premium is equal to the slope of the securities market line.
Describe the security market.
The security market is a segment of the larger financial market where securities may be purchased and sold between economic entities based on supply and demand.
The securities market line (SML), which is based on the Capital Asset Pricing Model (CAPM), displays the combination of ideal portfolios. The assets that offer the highest expected return at a given level of risk or the lowest risk at a given level of expected return make up the optimum combination. With the use of the following formula, the CAPM theory exploits the relationship between the aset's risk-free rate, its beta, market return, etc (Rm - Rf)
Re is the anticipated rate of
Where,
Re = Expected rate of return on a security
Rf = Risk-free rate of the security
B = Beta (systematic risk)
Rm = Market rate of return
Rm - Rf is the market risk premium.
Other statements are false.
Thus, the graphical representation of CAPM or the slope of SML shows the excess of the expected return over the market rate of return and is equal to the market risk premium.
The slope of the security market line equals the market risk premium.
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