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.

Consider the market for gas-powered small cars. assume gas-powered small cars are a normal good. for each of the following events, identify which of the determinants of demand or supply are affected. if demand is unaffected by this event because it creates only a supply change, select the “none” option under the “demand determinant” column. similarly, if supply is unaffected by this event because it creates only a demand change, select the “none” option under the “supply determinant” column. event demand determinant supply determinant people decide to have more children. the price of electric small cars falls. the discovery of a new source of iron ore lowers steel prices. an economic recession lowers people’s wealth. a number of major car dealers decide to switch from selling gas-powered cars to selling electric cars. show the effect of the following event on the market for gas-powered small cars: people decide to have more children for each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.