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The security market line

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Look at the Security Market Line . Its positive slope and steepness comes from two points, the point where a beta of 1.0 intersects with an expected return on 12% (the stock market return), and the point where the 5% risk-free rate intersects with a beta of 0. The line can be flatter or steeper, depending on the variables. What happens to the Security Market Line if we assume a stagflation period when the expected S&P 500 Index return is 2% and the risk free rate is 8%?

Reference no: EM13667694

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