If investors expected inflation to increase in the future,what would happen to the security market line (SML)?
A)The slope of the SML would rise.
B)The SML would shift downward,but the slope would remain the same.
C)The slope of the SML would fall.
D)The SML would shift up,but the slope would remain the same.

Question

Quizplus · Accepted Answer

If investors expect inflation to increase, the risk-free rate, which is part of the SML, would increase, causing the entire SML to shift upward while maintaining the same slope.

If Investors Expected Inflation to Increase in the Future,what Would