Question

If all investors become more risk averse the SML will _______________ and stock prices will _______________. Multiple Choice have the same intercept with a flatter slope; rise shift upward; rise have the same intercept with a steeper slope; fall shift downward; fall

Answer 1

Answer:

1. have the same intercept with a steeper slope;

2. fall

Explanation:

If all investors become more risk-averse, the SML will "have the same intercept with a steeper slope," and stock prices will "Fall."

The above statement is TRUE, and it is based on the theory that the slope of the Security Market Line reflects the level at which investors are unwilling to take the risk. Whereby the average investor prefers higher returns but is reluctant to take the risk.