Which of the following statements about the security market line (SML) and inves

Question

Which of the following statements about the security market line (SML) and investor's risk aversion is correct? a. The less steep the slope of the line, the greater the average investor's risk aversion, and thus the lesser the return investors require as compensation for risk. b. The steeper the slope of the line, the lesser the average investor's risk aversion, and thus the lesser the return investors require as compensation for risk. c. The steeper the slope of the line, the greater the average investor's risk aversion, and thus the lesser the return investors require as compensation for risk. d. The steeper the slope of the line, the lesser the average investor's risk aversion, and thus the greater the return investors require as compensation for risk. e. The steeper the slope of the line, the greater the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.

Explanation / Answer

The following statement is correct relating to SLM and investor's risk aversion.

e.) The steeper the slope of the line, the greater the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.

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