Which of the Following Statements About the Security Market Line

Multiple Choice

Which of the following statements about the security market line (SML) and investor's risk aversion is correct?

A) The steeper the slope of the line, the lower the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.
B) The steeper the slope of the line, the greater the average investor's risk aversion, and thus the greater the return investors require as compensation for risk.
C) The steeper the slope of the line, the lower the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.
D) The steeper the slope of the line, the greater the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.
E) The less steep the slope of the line, the greater the average investor's risk aversion, and thus the lower the return investors require as compensation for risk.