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The Slope of the SML Is Determined by Investors' Aversion

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The slope of the SML is determined by investors' aversion to risk.The greater the average investor's risk aversion, the steeper the SML.


Definitions:

Debt Ratio

A financial ratio that measures the extent of a company’s leverage by comparing total liabilities to total assets.

Borrowed Funds

Money obtained through loans or credit arrangements, which is expected to be repaid with interest.

Total Assets

The sum of all current and non-current assets owned by a company, indicating the company's overall value.

Average Collection Periods

The average number of days it takes for a business to receive payments owed by its customers.

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