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.

---

Definitions:

Regression

In psychology, regression is a defense mechanism that leads an individual to revert to a previous stage of development or to earlier, less sophisticated behaviors in response to stress or anxiety.

Transference

In psychoanalytic theory, the tendency to bring ways of thinking, feeling, and behavior that developed toward one important person into later relationships with different persons.

Libidinal Restructuring

A theoretical process involving the transformation or redirection of libidinal (sexual) energy or desires.

Genital Character

In psychoanalytic theory, a personality type that emerges during the genital stage of psychosexual development, characterized by the ability to form mature and mutual relationships.