Which of the Following Statements About the Security Market Line

question 12

Multiple Choice

Which of the following statements about the security market line (SML) and investor's risk aversion is correct?

• A)The steeper the slope of the line, the lower the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.
• B)The steeper the slope of the line, the greater the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.
• C)The steeper the slope of the line, the lower the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.
• D)The steeper the slope of the line, the greater the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.
• E)The less steep the slope of the line, the greater the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.

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Definitions:

Held Abroad

Refers to assets or investments located or held in a foreign country, outside of the investor's home nation.

Unit Of Account

The yardstick people use to post prices and record debts.

Legal Tender

Legal tender refers to money that must be accepted if offered in payment of a debt in the jurisdiction where the payment is being made.

Medium Of Exchange

An item that buyers give to sellers when they want to purchase goods and services.