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

question 177

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)The risk-free rate would increase.
• C)The slope of the SML would increase.
• D)Both a & c
• E)All of the above

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Definitions:

Majority

The greater part or number; the number over half of a total.

Conform

To adjust one's behavior or beliefs to align with the standards, norms, or expectations of a group or society.

Conformity

The act of matching attitudes, beliefs, and behaviors to what is considered the societal norm.

Minority Of One

Describes an individual who stands in opposition or holds a different opinion from the rest of a group, often facing pressure to conform.