Explain why in a highly competitive market all stocks should plot on the same security market line.

The security market line for all stocks will have the same intercept point, which is the risk-free rate of return as represented by the Treasury bill rate. In a highly competitive market, all stocks should be priced correctly so that the risk-reward ratio is constant. A constant risk-reward ratio would cause all stocks to plot on the same security market line due to the fact that the risk-reward ratio is the slope of that line.