How does investors’ preference for risk affect the slope of the security market line?
What will be an ideal response?
The more risk-averse investors are, the steeper the SML line will be. Investors will want more return for their risk taking if they are risk-averse. On the opposite end, if investors are less sensitive to changes in risk, the SML curve will be fairly flat, as large changes in risk don’t result in large changes in return.
You might also like to view...
Which of the following is true?
A) If the price of a substitute rises, the demand curve shifts leftward. B) An increase in the cost of producing a good shifts the demand curve leftward. C) An increase in population shifts the demand curve leftward. D) If people expect the price of a good will rise in the future, the demand curve shifts leftward. E) For an inferior good, when income increases, the demand curve shifts leftward.
All of the following take place in the direct finance market except
A) ownership in corporations is sold in the form of common stock. B) ownership in corporations is sold in the form of preferred stock. C) corporate bonds are sold to savers. D) deposits from savers are accumulated and loans made to borrowers.