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:
Answer
A) The y-axis intercept would decline, and the slope would increase.
B) The x-axis intercept would decline, and the slope would increase.
C) The y-axis intercept would increase, and the slope would decline.
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.

If in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks
A) the stock is experiencing supernormal growth.
B) the stock should be sold.
C) the stock is a good buy.
D) management is probably not trying to maximize the price per share.
E) dividends are not likely to be declared.