If Expectations for Long-Term Inflation Rose, but the Slope of the SML

question 52

True/False

If expectations for long-term inflation rose, but the slope of the SML remained constant, this would have a greater impact on the required rate of return on equity, r_s, than on the interest rate on long-term debt, r_d, for most firms.Therefore, the percentage point increase in the cost of equity would be greater than the increase in the interest rate on long-term debt.

---

Definitions:

Stressful Experiences

Events or situations that cause strain or tension, potentially leading to negative emotional or physical responses.

Norepinephrine

A neurotransmitter and hormone involved in the body's fight or flight response, affecting attention, heart rate, and other physiological functions.

Acetylcholine

A neurotransmitter in the brain and body that is involved in many functions, including muscle movement and memory.

Serotonin

A neurotransmitter that contributes to feelings of well-being and happiness, also playing roles in sleep, digestion, and mood regulation.