The security market line proposes that the required rates of return are determined by the following formulation:

A) k_m = k_rf + (k_x - k_rf) b_x.
B) k_x = k_rf + (k_m - k_rf) b_x.
C) k_rf = k_x + (k_m - k_x) b_x.
D) k_x = k_rf + (k_m - k_rf) b_m.

Security Market Line

A graphical representation of the expected return of investments at different levels of risk as per the Capital Asset Pricing Model (CAPM).

Required Rates of Return

The minimum annual percentage earned by an investment that will entice individuals or companies to put money into it, considering the risk.

Formulation

The process of devising or planning a strategy, policy, or system often based on specified principles or procedures.