Explain How the Slope of the Security Market Line Is

question 23

Essay

Explain how the slope of the security market line is determined and why every stock that is correctly priced,according to CAPM,will lie on this line.

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Definitions:

Hydroxyl Group

A functional group consisting of an oxygen atom bonded to a hydrogen atom (-OH), common in alcohols and many other organic compounds.

Methane

A greenhouse gas consisting of one carbon atom and four hydrogen atoms, CH4, contributing to global warming.

Methanol

A simple alcohol with the formula CH3OH, known for its use as a solvent, antifreeze, fuel, and as a precursor to other chemicals.

Carbon

A chemical element with symbol C and atomic number 6, essential to all known life and the basis for organic chemistry.