Suppose the Bank of Canada increased the rate on T-bills. As a result of this action, the security market line of a risky individual security would:
A) Remain constant.
B) Have an increased slope.
C) Have a decreased slope.
D) Increase in a parallel manner.
E) Decrease in a parallel manner.

Question

Quizplus · Accepted Answer

An increase in the T-bill rate, which is the risk-free rate, would shift the security market line upwards in a parallel manner, as the risk-free rate is a component of the intercept of the line.

Suppose the Bank of Canada Increased the Rate on T-Bills