The Security Market Line (SML)relates Risk to Return,for a Given

question 49

Multiple Choice

The Security Market Line (SML) relates risk to return,for a given set of financial market conditions.If investors conclude that the inflation rate is going to increase,which of the following changes would be most likely to occur?

• A) The market risk premium would increase.
• B) Beta would increase.
• C) The slope of the SML would increase.
• D) The required return on an average stock,r_A = r_M,would increase.
• E) None of the indicated changes would be likely to occur.

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Definitions:

Obsessive-Compulsive Disorder

A mental disorder characterized by unwanted, repetitive thoughts (obsessions) and/or behaviors (compulsions) that the individual feels the urge to repeat over and over.

Difficulty Concentrating

A common cognitive issue where an individual finds it hard to maintain focus on tasks or activities.

Worrying

The act of feeling anxious or concerned about actual or potential problems, often leading to overthinking or stress.

Conversion Disorders

A mental condition where psychological stress is expressed through physical symptoms without an underlying medical cause.