Final answer:
The correct choice is B. Security Market Line, which represents the expected return of a security relative to its systemic risk. This line is associated with the tradeoffs between return and risk in financial investments, guiding investors in their decisions.
Step-by-step explanation:
The line that shows all of the return and beta combinations that are possible by combining a given risky asset with the risk-free asset is the Capital Market Line (CML). However, this option is not listed. Among the provided choices, the closest in concept to the CML is the Security Market Line (SML). The SML is a graphical representation of the Capital Asset Pricing Model (CAPM), which shows the expected return of a security as a function of its systemic risk, measured by beta. The line charts the relationship between the market risk of an asset as measured by its beta and the expected return of the market and various securities.
The tradeoffs between return and risk are crucial in financial investment decisions as investors seek to balance the potential for higher returns against the increased risk associated with various asset classes, such as bank accounts, bonds, and stocks. Investors commonly select a mix of assets that align with their risk tolerance and financial goals, aiming to achieve the best possible return while managing their exposure to risk.