Explanation:
Since both stocks are efficiently priced, it means that their returns are both represented by the SML. The slope of the SML is the difference between the expected return on the market and the risk-free rate, and this differential is the same along the entire SML.
(Book 1, Module 5.2, LO 5.b)
Ultimate access to all questions.
Question 53
An analyst computes expected returns for stocks A and B. Both are efficiently priced. If the beta for Stock A is 0.72 and the beta for Stock B is 1.18, the slope of the security market line (SML) for Stock A relative to the slope of the SML for Stock B will be:
A
lower.
B
higher.
C
the same.
D
flat.
No comments yet.