Other things held constant, if the expected inflation rate DECREASES and investors also become MORE risk averse, the Security Market Line would shift in which manner:
A) down and have a steeper slope
B) up and have a less steep slope
C) up and keep the same slope
D) down and keep the same slope

Question

Quizplus · Accepted Answer

A decrease in the expected inflation rate would shift the Security Market Line (SML) down, while increased risk aversion would make the slope steeper, as investors require a higher risk premium for taking on additional risk.

Other Things Held Constant, If the Expected Inflation Rate DECREASES