If you plotted the returns of a given stock against those of the market, and you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming that investors in the market expect the observed relationship to continue on into the future.

The slope of the SML is determined by the value of beta.

The SML shows the relationship between companies' required returns and their diversifiable risks. The slope and intercept of this line cannot be influenced by a firm's managers, but the position of the company on the line can be influenced by managers.

If investors become less risk averse, the slope of the Security Market Line will increase.

If a company increases its use of debt, this is likely to cause the slope of its SML to increase, indicating a higher required return on the stock.

#### Top Answer

Here's the explanation you needed for... View the full answer

## This question was asked on May 29, 2010 and answered on May 29, 2010.

### Recently Asked Questions

- i need help with an abstract , boundary conditions, and finite difference ( discrete equation) the term project is attached below

- I need to find the correct way to graph this problem

- C++ Read in the Code only using WHILE and IF and ELSE. Can NOT use FOR, BOOL. EXPECTED OUTPUT: PROGRESS SO FAR: #include <iostream> #include <string> using