An Increase in the Risk-Free Rate Causes the SML to Shift

question 40

True/False

An increase in the risk-free rate causes the SML to shift down parallel to the old SML.

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Definitions:

After-Tax Lease Payment

The lease payment amount remaining after deducting any tax benefits realized by the lessee, reflecting the net cost of the lease.

Tax Rate

The proportion of income or the value of a transaction that must be paid to the government as tax.

Cost of Borrowed Funds

The interest rate or expense a company or individual pays for borrowing money.

Residual Value

Residual value is the estimated value that an asset will have at the end of its useful life, crucial in leasing and depreciation calculations.