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

question 34

Multiple Choice

The security market line (SML) relates risk to return, for a given set of market conditions. If risk aversion 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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Definitions:

French Revolution

A period of far-reaching social and political upheaval in France and its colonies beginning in 1789, which fundamentally changed the course of French history.

Mexican Revolution

A major armed struggle from 1910 to 1920 that transformed Mexican culture and government, leading to the end of the Porfiriato and the establishment of a constitutional republic.

Sugar Act

A British law enacted in 1764 that imposed a tax on sugar and molasses imported into the American colonies, leading to widespread discontent.