Which of the following statements about risk-return relationship is correct?
A. ?An increase in the expected inflation would lead to an increase in the required return on all the risky assets by the same amount, assuming all other things were held constant.
B. ?A graph of the SML would show required rates of return on the vertical axis and standard deviations of returns on the horizontal axis.
C. ?As a result of change in investors' risk aversion, the required rate of return on low-beta stocks is impacted more when compared to the required rate of return on high-beta stocks.
D. ?If investors became more averse to risk, then the slope of the SML would become less steep.
E. ?The market risk premium is lower for higher beta stocks and higher for lower beta stocks.
Answer: A
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