All other things being equal, what is the major impact that an increase in the expected inflation rate would be expected to have on the security market line?
A)Reduce its slope
B)Shift it down
C)Shift it up
D)Reduce required returns for investors in any individual asset

Question

Quizplus · Accepted Answer

An increase in the expected inflation rate would shift the security market line (SML) up because investors would require higher returns to compensate for the decreased purchasing power of future cash flows.

All Other Things Being Equal, What Is the Major Impact