In the capital asset pricing model,an increase in inflationary expectations will be reflected by
A) a parallel shift downward in the security market line.
B) a decrease in the slope of the security market line.
C) an increase in the slope of the security market line.
D) a parallel shift upward in the security market line.

Question

Quizplus · Accepted Answer

An increase in inflationary expectations will cause an increase in the risk-free rate, which will push the line up without affecting the slope.

In the Capital Asset Pricing Model,an Increase in Inflationary Expectations