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

question 4

Multiple Choice

The security market line (SML) relates risk to return, for a given set of market conditions. If expected inflation increases, which of the following would most likely occur?

• A) The market risk premium would increase.
• B) Beta would increase.
• C) The slope of the SML would increase.
• D) The SML line would shift up.

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