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:
Affiliation
Explanation:
Juan's participation in the post-cardiac exercise program best reflects the need for affiliation as a psychological benefit of physical activity.
Juan's condition for the need to affiliation is best described by David McClelland in his human motivation theory. The need for affiliation is described as an individual's need to discern or feel a sense of belonging and association with a particular social group.
Answer: reindeer and muskox
Explanation:
The correct answers to these open questions are the following.
1. Do you think that the business executive who made this statement would be in favor of or against free trade? What makes you think so?
What I think is that times are changing and are very different from the time of "Made in America."
In this modern-time, globalization rules, and free trade are the direct consequence of globalization. Many American companies have decided to go abroad and built fabrics and industrial plants in other countries because in those developing countries they pay low salaries and can get more profits selling their products. American companies have been greedy too.
2. What do you feel about the number of imported items you can buy in stores? How might free trade affect these numbers?
As I mentioned above, it is part of free trade in a globalized world. Yes, the United States imports many things, but let's remember that the US also exports many goods to other countries. So this is call balance, in which countries negotiate to have a balance in trade. Countries export, yes, but they also have to import goods, so all the countries win.
The best example is the free trade agreement called NAFTA, now USMCA, between México, Canada, and the United States.