The Security Market Line (SML) Relates the Risks of Individual

question 74

Multiple Choice

The Security Market Line (SML) relates the risks 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 will increase.
• B)The beta of a stock will increase.
• C)The slope of the SML will become steeper.
• D)The standard deviation of a stock will increase.
• E)The required returns on all stocks will increase.

---

Definitions:

Temporal Method

An accounting method used to translate foreign currency financial statements into the reporting currency of a parent company, focusing on the timing of transactions.

Ending Inventory

The total value of all inventory a company has in stock at the end of an accounting period.

Average Cost

An inventory costing method where the cost of goods sold and ending inventory is determined by averaging the cost of all purchases.

Consolidated Statement of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company, taking into account both its subsidiaries and parent company.