Question 12 Which of the following statements about Security Market Line (SML) equation “ri = rRF...
Question 12
Which of the following statements about Security Market Line (SML) equation “ri = rRF + (rM – rRF)bi = rRF + (RPM)bi” is NOT true?
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ri is the required rate of return for stock i. |
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rRF is the real risk-free rate. |
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rM is the required rate of return on a portfolio consisting of all stocks, which is called the market portfolio. |
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RPM is the risk premium on market portfolio. It equals to rM - rRF. |
Homework Answers
Hello Sir/ Mam
YOUR REQUIRED ANSWER IS OPTION B
rRf is no doubt the risk free rate but it is not adjusted for inflation before using. Hence, it is nominal risk free rate.
Considering it the real risk free rate will not be true.
I hope this solves your doubt.
Feel free to comment if you still have any query or need something else. I'll help asap.
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Question 12
Which of the following statements about Security Market Line
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