9、If the Capital Asset Pricing Model (CAPM) assumption that there are no transactions costs is relaxed and transactions costs are permitted, all else equal, the most likely result is that the security market line (SML) will:

A. plot on a flatter line.

B. plot on a steeper line.

C. be the same as before.

D. no longer plot on a single line.

答案和详解如下：

9、Correct answer is D

"An Introduction to Asset Pricing Models," Frank K. Reilly and Keith C. Brown

2008 Modular Level I, Vol. 4, pp. 271-275

Study Session 12-51-d

explain the capital asset pricing model, including the security market line (SML) and beta, and describe the effects of relaxing its underlying assumptions

Under the assumption of no transactions, costs investors will purchase or sell mispriced securities until they plot on the SML. In the presence of transactions costs, investors will not correct all mispricing because transactions costs may exceed any potential gains. Securities will plot close to the SML but not exactly on it. Thus the SML will no longer plot on a single line.

答案如下：

9、Correct answer is D

"An Introduction to Asset Pricing Models," Frank K. Reilly and Keith C. Brown

2008 Modular Level I, Vol. 4, pp. 271-275

Study Session 12-51-d

explain the capital asset pricing model, including the security market line (SML) and beta, and describe the effects of relaxing its underlying assumptions

Under the assumption of no transactions, costs investors will purchase or sell mispriced securities until they plot on the SML. In the presence of transactions costs, investors will not correct all mispricing because transactions costs may exceed any potential gains. Securities will plot close to the SML but not exactly on it. Thus the SML will no longer plot on a single line.

thanks