How Would the Security Market Line Be Affected, Other Things

question 77

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 averseσ

• 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.

Understand the impact of inflation rates on future values and payments.

Analyze and determine the average annual rate of interest earned over a specific period.

Calculate the issue price and profit/loss of bonds over time.

Understand the concept of compound interest with different compounding periods (monthly, semi-annually, quarterly).

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