If Expectations for Long-Term Inflation Rose, but the Slope of the SML

question 52

True/False

If expectations for long-term inflation rose, but the slope of the SML remained constant, this would have a greater impact on the required rate of return on equity, r_s, than on the interest rate on long-term debt, r_d, for most firms.Therefore, the percentage point increase in the cost of equity would be greater than the increase in the interest rate on long-term debt.

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Definitions:

Selection Bias

A distortion in statistical analysis caused by choosing non-random data for statistical analysis.

Data Samples

Collections of data gathered from various sources used for analysis or training algorithms.

Different Activities

Various tasks or operations that a business or individual may engage in, often requiring distinct sets of skills or resources.

Correlation With Causation

The mistaken assumption that a relationship between two variables (correlation) necessarily implies that one causes the other (causation).