A stock has a beta of 1.32 and an expected return of 12.8 percent. The risk-free rate is 3.6 percent. What is the slope of the security market line?

6.97%

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

12.8% = 3.6% + 1.32 * (Market rate of return - 3.6%)

12.8% - 3.6% = 1.32 * (Market rate of return - 3.6%)

9.2% : 1.32 = (Market rate of return - 3.6%)

So, (Market rate of return - 3.6%) would be 6.97%

The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.