1- If inflation declined by 1%

a) the security market line would shift down by 1% so that it is parallel to the existing line and all securities would have a decrease in required return of 1%

b) the security market line would pivot downward that its slope is less steep. The risk-free rate would not change. Securities with high betas would have the greatest decline in required return

c) the beta for Apple would increase from 1 to 2 causing the required return for Apple to increase.

d) a and c would both occur.

2- If investors become less risk averse

a) the security market line would shift down by 1% so that it is parallel to the existing line and all securities would have a decrease in required return of 1%

b) the security market line would pivot downward that its slope is less steep. The risk-free rate would not change. Securities with high betas would have the greatest decline in required return

c) the beta for Apple would increase from 1 to 2 causing the required return for Apple to increase.

d) a and c would both occur.

3- If Kelloggs starts selling off its food lines and starts investing in the production rockets that can be leased for trips to the moon

a) the security market line would shift down by 1% so that it is parallel to the existing line and all securities would have a decrease in required return of 1%

b) the security market line would pivot downward that its slope is less steep. The risk-free rate would not change. Securities with high betas would have the greatest decline in required return

c) the beta for Kelloggs would increase from 1 to 2 causing the required return for Kelloggs to increase.

d) both a and c will occur