Asked by TANAJOTI CHANDRA RAJAN on Jun 18, 2024
Verified
The vertical intercept of the SML represents:
A) investment in long-term government securities.
B) investment in short-term corporate bonds.
C) investment in short-term market securities.
D) investment in short-term government securities.
SML
Security Market Line, a graphical representation of the expected return of investments as a function of their risk, as measured by beta.
Vertical Intercept
The point where a graphed line crosses the vertical axis, often used in mathematical functions to determine a starting point.
- Acquire knowledge on the influence of variations in the risk-free rate upon the Security Market Line (SML).
Verified Answer
KC
katrina crouseJun 18, 2024
Final Answer :
D
Explanation :
The vertical intercept of the SML represents the expected return on a risk-free asset, which is usually short-term government securities like Treasury bills. Therefore, the best choice is D - investment in short-term government securities.
Learning Objectives
- Acquire knowledge on the influence of variations in the risk-free rate upon the Security Market Line (SML).