Which of the following is least likely to move a firm's position to the right on the Security Market Line (SML)?
A) an increase in the firm's beta
B) adding more financial debt to the firm's balance sheet relative to equity
C) changing the business strategy to include new product lines with more volatile expected cash flows
D) Investors perceive the stock as being riskier.
E) an increase in the risk-free required rate of return

Question

Quizplus · Accepted Answer

An increase in the risk-free required rate of return affects all securities universally and shifts the entire Security Market Line (SML) upward due to changes in the risk-free rate, not moving a specific firm's position to the right or left on the SML. Choices A, B, C, and D directly relate to changes in a firm's risk profile, which can move its position on the SML.

Which of the Following Is Least Likely to Move a Firm's