If all investors become more risk averse the SML will ________ and share prices will ________.
A)shift upward; rise
B)shift downward; fall
C)have the same intercept with a steeper slope; fall
D)have the same intercept with a flatter slope; rise

Question

Quizplus · Accepted Answer

When investors become more risk-averse, they require a higher risk premium for taking on additional risk, which steepens the slope of the Security Market Line (SML). This increased risk premium leads to higher required returns, causing share prices to fall.

If All Investors Become More Risk Averse the SML Will