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.
Learn more about Security Market Line (SML) on:
brainly.com/question/15877803
#SPJ4
<span>The most unpredictable presentation aid a speaker could use is a person or an animal.
Presentation aids are things other than the expressions of a speech that are utilized to support the goal of the speaker. Specifically, they can be visual aids, sound aids or other supporting innovation.</span><span /><span>
</span>
Answer:
He's in the Intimacy vs. Isolation stage of psychosocial development.
Explanation:
Intimacy vs. Isolation stage of psychosocial development centers around forming intimate, long-lasting relationships.
When failing this stage, it will most probably result in a devastating sense of isolation and perpetual loneliness. While succeeding will result in an strong, intimate circle of relationships.
Answer:
Sugauli treaty was a treaty that defined the borders of Nepal after its expansion to other territories and conflicts with other countries aroused. It was established on the 2nd of December 1815.
Explanation:
The Sugauli treaty established the borders of Nepal after conflicts with the East India Company took place. Nepal and the East India Company signed a treaty that defined the limits of Nepal. As a consequence, Nepal lost some of its territories. The Sugauly treaty was signed on December 2, 1815, and ratified on March 4, 1816.
