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Ross et al.: Fundamentals V. Risk and Return 13. Return, Risk, and the of Corporate Finance, Sixth Security Market Line

Edition, Alternate Edition returns on individual assets. In particular, it is the basis for a famous relationship between risk and return called the security market line, or SML. To develop the SML, we introduce the equally famous "beta" coefficient, one of the centerpieces of modern finance. Beta and the SML are key concepts because they supply us with at least part of the answer to the question of how to go about determining the required return on an investment.

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