How Would the Security Market Line Be Affected, Other Things

question 89

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 averse?

• 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.

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