Use the security market line model to explain why stock prices did not rise when the Federal Reserve lowered the risk-free interest rate during the Great Recession of 2007–2009.
What will be an ideal response?
During the Great Recession investors became more fearful about taking on risk, so they demanded more compensation (higher average expected return) for any level of risk (beta) along the security market line. In terms of the SML graph, the slope of the security market line increased. At the same time, the vertical intercept (risk-free interest rate) for the security market line decreased. The greater fear led to the selling of assets, including stocks. The slope of the line increased because investors demanded higher average returns at any risk level. This increase in slope more than offset the decline in the risk-free interest rate. Stock sold off as the risk-free interest rate fell.
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The main problem with using groundwater to increase water supplies is that
a. Groundwater tends to be contaminated with pesticides b. Groundwater is normally found in countries that already have sufficient supplies c. Groundwater aquifers are being rapidly depleted d. Groundwater tends to be too salty e. Groundwater tends to be too expensive
The table above shows the weekly relationship between output and number of workers for a factory with a fixed size of plant
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