Question: Other things held constant, if the expected inflation rate decreases and investors also become more risk averse, the Security Market Line would be affected as

Other things held constant, if the expected inflation rate decreases and investors also become more risk averse, the Security Market Line would be affected as follows:

a. The x-axis intercept would decline, and the slope would increase.

b. The y-axis intercept would increase, and the slope would decline.

c. The y-axis intercept would decline, and the slope would increase.

d. The SML would be affected only if betas changed.

e. Both the y-axis intercept and the slope would increase, leading to higher required returns.

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