Assume there is a market-wide event that causes investors to become more risk-averse. Assume there is no change to the Risk-free rate.

1. How will this affect the Security Market Line?

a) No effect, since the market-wide event is not a firm-specific risk for Stock ABC.

b) The SML will have a steeper slope

c) The SML will have a less steep slope

d) The SML will exhibit a parallel shift upward

e) The SML will exhibit a parallel shift downward

2) Will this change the required return for a given stock with Beta=0.8?

a) Yes

b) No