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Suppose a risk-free asset currently earns 2 percent, and expected return of the market portfolio is 8 percent. Draw a security market line and label
Suppose a risk-free asset currently earns 2 percent, and expected return of the market portfolio is 8 percent. Draw a security market line and label it as SML1. Suppose investors become more risk averse and the risk-free rate remains unchanged. How would this affect the slope of security market line? Provide your reasons and draw a second security market line on the same graph, and label it as SML2.
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