The Security Market Line (SML) Relates Risk to Return, for a Given

question 39

Multiple Choice

The Security Market Line (SML) relates risk to return, for a given set of financial market conditions.If investors conclude that the inflation rate is going to increase, which of the following changes would be most likely to occur?

• A) The market risk premium would increase.
• B) Beta would increase.
• C) The slope of the SML would increase.
• D) The required return of an average share, rA = rM, would increase.
• E) None of the indicated changes would be likely to occur.

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