The Security Market Line (SML) Relates Risk of Individual Securities

question 19

Multiple Choice

The Security Market Line (SML) relates risk of individual securities to their required rate of return. If investors conclude that the inflation rate is going to increase, which of the following change would occur?

• A) The market risk premium would increase.
• B) The beta of the stock would increase.
• C) The slope of the SML would become steeper.
• D) The standard deviation of the stock would increase.
• E) The required return of an average stock would increase.

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Definitions:

Peripheral Nervous System

The part of the nervous system that consists of the nerves and ganglia outside of the brain and spinal cord.

Somatic Nervous System

The part of the peripheral nervous system that handles voluntary control of body movements through control of skeletal muscles.

Endocrine System

A network of glands in the body that produce and release hormones directly into the bloodstream to regulate the body's growth, metabolism, and sexual development and function.

Peripheral Nervous System

The part of the nervous system that consists of the nerves and ganglia outside of the brain and spinal cord, responsible for connecting the central nervous system to limbs and organs.