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
Answer:
True
Explanation:
Observational study is a kind of study in which individuals are observed or certain outcomes are measured,without manipulation or intervantion from external sources.
Measuring the relationship between the attractiveness scores asigned to college students by a panel of peers and their scores on a paper and pencil test of anxiety is simply an observation to ascertain an outcomewhich is simply a comparison.
Using microbes in the field of genetic engineering (vector). Vectors mean that some microbes carry the nene of interest to target the genome. The recombinant DNA of the vector is plasmid DNA. Most of these can actually be munched bacteria that is the genetically engineered bacteria can clean up oil spills.
<span>Transference
In a therapy context, transference refers to redirection of a patient's feelings for a significant person to the therapist. ... Countertransference is defined as redirection of a therapist's feelings toward a patient, or more generally, as a therapist's emotional entanglement with a patient.</span>
Answer:
Antebellum means when something occurs before a war
Explanation:
