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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Definitions:

True Score

The true score in measurement theory is the actual score that perfectly reflects the corresponding attribute or quantity without any measurement error.

Observed Score

The actual score or value obtained from measuring or testing an individual's performance or trait.

Error Impact

Refers to the effect that inaccuracies in data or calculations can have on the results of a study or analysis.

Reliability Equation

A formula used to calculate the consistency or stability of scores obtained from tests measuring the same construct.