Other things held constant, if the expected inflation rate DECREASES, and investors also become MORE risk averse, the Security Market Line would shift in<u> have a steeper slope </u>manner.
<h3>What is the Security Market Line (SML)?</h3>
The security market line (SML) is the Capital Asset Pricing Model (CAPM). It gives the market’s expected return at different levels of systematic or market risk. It is also called the ‘characteristic line’ where the x-axis represents the asset’s beta or risk, and the y-axis represents the expected return.
<u>Security Market Line Equation</u>
The Equation is as follows:
SML: E(Ri) = Rf + βi [E(RM) – Rf]
In the above security market line formula:
- E(Ri) is the expected return on the security.
- Rf is the risk-free rate and represents the y-intercept of the SML.
- βi is a non-diversifiable or systematic risk. It is the most crucial factor in SML. We will discuss this in detail in this article.
- E(RM) is expected to return on market portfolio M.
- E(RM) – Rf is known as Market Risk Premium.
<u>Characteristics of the Security Market Line (SML) are as below:</u>
- SML is a good representation of investment opportunity cost, which combines the risk-free asset and the market portfolio.
- Zero-beta security or zero-beta portfolio has an expected return on the portfolio, which is equal to the risk-free rate.
- The slope of the Security Market Line is determined by the market risk premium, which is: (E(RM) – Rf). Higher the market risk premium steeper the slope and vice-versa
- All the assets which are correctly priced are represented on SML.
- The assets above the SML are undervalued as they give a higher expected return for a given amount of risk.
- The assets below the SML are overvalued as they have lower expected returns for the same amount of risk.
Therefore, we can conclude that the correct option is A.
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Answer:
C.)
Explanation:
If Jill is using rational decision making, she should MAINLY consider the marginal costs and marginal benefits.
Answer:
To start, Australia is an island and lacks all the natural resources needed for an economy to run smoothly. Meaning, that the country/continent has to import much of its needs. additionally, the terrain of the continent is mostly dry, desolate, desert/tundra which isn’t very supportive of human life. This would mean that that part of the earth does not have resources. Again, this means that while Australia has a phenomenal working population, many of its needs have to be imported for the economy to function.
Explanation:
Answer:
When a new chieftain rose to power, his rule began with a ceremony at Lake Guatavita. Accounts of the ceremony vary, but they consistently say the new ruler was covered with gold dust, and that gold and precious jewels were thrown into the lake to appease a god that lived underwater.
Explanation:
