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Assume That the Security Market Line (SML)is Based on a Risk

question 17

Multiple Choice

Assume that the Security Market Line (SML) is based on a risk free rate of 5% and a market rate of 11%. What will happen to the SML if the forecast of inflation increases and investors become more risk averse?


Definitions:

Marginal Utility

The extra fulfillment or advantage a person gains by consuming an additional unit of a product or service.

Satisfaction

The feeling of pleasure or fulfillment that comes from achieving a goal or satisfying a need.

Marginal Utility

The increase in satisfaction or utility derived from the consumption of an additional unit of a good or service.

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