The SML Relates Risk to Return, for a Given Set

question 60

Multiple Choice

The 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:

Separate Legal

Refers to a legal entity, such as a corporation, that is legally distinct from its owners.

Taxable Entity

An individual, organization, or corporation subject to taxes on income or transactions by governmental agencies.

Proprietorship

A form of business organization where a single individual owns the company and is responsible for its debts.

Balance Sheet

A financial statement that displays a company's assets, liabilities, and shareholder equity at a specific point in time, providing a snapshot of its financial condition.