Question

Which of the following statements are accurate concerning the security market line (SML) approach?I. The SML applies only to firms with stable dividend growth rates.II. Like the dividend growth model, the SML generally relies on using the past to predict the future.III. Unlike the dividend growth model, the SML estimate is adjusted for risk.IV. The quality of the estimate from the SML approach is sensitive to the quality of the estimates of the variables in the model.A) I and III onlyB) II and IV onlyC) II and III onlyD) II, III, and IV onlyE) I, II, III, and IV

Answer 1

Answer:

B) II and IV

Explanation:

SML Approach does not considers unsystematic risk and it does consider current and past information of the Stock and market. SML approach consider standard deviation which is more used by firms than Dividend growth model. and it considers reward to risk ratio is constant.