9. The existence of a risk-free asset results in the derivation of:

A. the security market line (SML)

B. the characteristic line

C. the efficient frontier

D. the capital market line (CML)

10. If the market portfolio has an expected return of 0.12 and a standard deviation of 0.40, and the risk-free rate is 0.04, what is the slope of the security market line?

A. 0.08

B. 0.20

C. 0.04

D. 0.12

11. A particular asset has a beta of 1.2 and an expected return of 10%. The expected return on the market portfolio is 13% and the risk-free is 5%. Which of the following statement is correct?

A. This asset lies on the security market line.

B. This asset lies above the security market line.

C. This asset lies below the security market line.

D. Cannot tell from the given information.

12. A stock that pays no dividends is currently priced at $40 and is expected to increase in price to $45 by year end. The expected risk premium on the market portfolio is 6% and the risk-free is 5%. If the stock has a beta of 0.6, the stock is

A. overpriced

B. underpriced

C. appropriately priced

D. Cannot tell from the given information