If the risk-free return were 4.0% and a security's beta coefficient were 2.0, what would be the required rate of return for the security? 4% 5% 10% 14% 2. If the risk-free return (inflation) increases by 2 percentage points, the required rate of return
Exploring Finance: The Security Market Line and Inflation Changes
Security Market Line: Inflation Changes
Conceptual Overview: Explore how inflation changes the security market line.
The Security Market Line defines the required
1. If the risk-free return were 4.0% and a security's beta coefficient were 2.0, what would be the required rate of return for the security?
- 4%
- 5%
- 10%
- 14%
2. If the risk-free return (inflation) increases by 2 percentage points, the required rate of return
- stays the same for all securities
- increases the same 2 percentage points for all securities
- increases for some securities and decreases for others depending on the beta coefficient
- cannot be determined without more information
3. If the risk-free return (inflation) increases by 2 percentage points, then for the security market line
- both the y-intercept and the slope remain the same
- the y-intercept changes and the slope remains the same
- the y-intercept remains the same and the slope changes
- both the y-intercept and the slope change
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