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10. (TCO C) Other things held constant, if the exp...

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10. (TCO C) Other things held constant, if the expected inflation rate decreases and investors also become more risk averse, the Security Market Line would be affected as follows: (Points: 10) The y-axis intercept would decline, and the slope would increase. The x-axis intercept would decline, and the slope would increase. The y-axis intercept would increase, and the slope would decline. The SML would be affected only if betas changed. Both the y-axis intercept and the slope would increase, leading to higher required returns.

 

Paper#2159 | Written in 18-Jul-2015

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