How Would the Security Market Line Be Affected, Other Things

question 89

Multiple Choice

How would the Security Market Line be affected, other things held constant, if the expected inflation rate decreases and investors also become more risk averse?

• A) The x-axis intercept would decline, and the slope would increase.
• B) The y-axis intercept would increase, and the slope would decline.
• C) The SML would be affected only if betas changed.
• D) Both the y-axis intercept and the slope would increase, leading to higher required returns.
• E) The y-axis intercept would decline, and the slope would increase.

---

Definitions:

Wage Increase

A rise in the amount of money workers are paid per unit of time.

Discrimination Complaint

A formal grievance filed by an individual alleging unfair treatment or inequality based on certain protected characteristics.

Equilibrium Wage

The wage rate at which the quantity of labor demanded equals the quantity of labor supplied.

After-School Tutoring

educational or supplementary instruction provided to students outside of regular school hours to improve their knowledge or skills.