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

Question

Quizplus · Accepted Answer

An increase in inflationary expectations leads to a higher risk-free rate, causing a parallel upward shift in the security market line.

In the Capital Asset Pricing Model, an Increase in Inflationary