Other things held constant, (1) if the expected inflation rate decreases, and (2) investors become more risk averse, the Security Market Line would shift
A) Down and have steeper slope.
B) Up and have less steep slope.
C) Up and keep same slope.
D) Down and keep same slope.
E) Down and have less steep slope.

Question

Quizplus · Accepted Answer

If the expected inflation rate decreases, the risk-free rate decreases, shifting the SML down. If investors become more risk-averse, they require a higher risk premium, making the slope of the SML steeper.

Other Things Held Constant, (1) If the Expected Inflation Rate