Answer: The relationship between the required rate of return and the beta of a stock.

## Explanation This is the most likely to be linear among the given options. According to the Capital Asset Pricing Model (CAPM), there is a linear relationship between a stock's beta and its expected return. The formula is: $$E(R_i) = R_f + \beta_i(E(R_m) - R_f)$$ Where: - $E(R_i)$ is the expected return on the asset - $R_f$ is the risk-free rate - $\beta_i$ is the beta of the asset - $E(R_m)$ is the expected return of the market This equation describes a straight line, with beta as the independent variable and expected return as the dependent variable. **Why other options are incorrect:** - **A**: The relationship between default probability and credit rating is typically not linear. Credit ratings are ordinal categories, and the increase in default probability is often not uniform between rating steps. - **B**: Due to the nature of option pricing models like the Black-Scholes, the delta (rate of change of the option price with respect to changes in the underlying asset price) changes as the underlying's price changes, resulting in a curved relationship. - **D**: The relationship between expected return and standard deviation of returns is typically represented by a curved efficient frontier in modern portfolio theory, not a straight line.

Author: Tanishq Prabhu