as word spread that global growth was starting to slow down, financial markets across the world In October 2018 went down significantly. Referencing the figures on pages 267 (6-10) & 268 (6-11) which of the two graphs provides the insight into why the overall stock markets reacted this way? Explain why? CHANGES IN RISK AVERSION The slope of the Security Market Line reflects the extent to which investors are averse to risk: The steeper the slope of the line, the greater the average investor's aversion to risk. Suppose all investors were indifferent to risk-that is, suppose they FIGURE 6-10 Shift in the SML Caused by an Increase in the Risk-Free Rate Required Rate of Return (%) SML,-896 + 596(b) SM L= 6% + 5%(b) RF2- 8 _ increase in Risk-Free Interest Rate 0.5 1.0 1.5 2.0 Risk, b FIGURE 6-11 Shift in the SML Caused by Increased Risk Aversion SML,-6% + 75%(b) Required Rate of Return (%) 17.25 SM Li . 6% + 5%(b) M2 13.5 i New Market Risk | | 9.75- Premium, rMZ-k!" 7.5% 8.5 Original Market Risk Premium, rsu" rm" 5% 1.0 1.5 20 Risk, b 0,5