Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
6 Cards in this Set
- Front
- Back
|
SML equation
|
=same as CAPM = RFR + B(Rm - RFR)
|
|
|
Systematic risk
|
cannot be diversified away. Risk premium for an individual security is based only on its systematic risk, not on its risk as a stand alone investment.
|
|
|
Causes of movement along the SML
|
Indicates that the risk level of an individual security has changed (systematic (beta) risk has changed).
|
|
|
Causes of change in slope of SML
|
Slope changes when there is a change in the market risk premium (increase = counterclockwise shift)
|
|
|
Causes of paralled shift in slope of SML
|
Capital market conditions change or if the rate of inflation changes. Also if Real RFR changes due to change in economic growth.
|
|
|
If economic growth increases aor supply of loanable funds decreases..
|
RFR increases and the SML will shift upward in a parallel fashion.
|
