Answer:
The flatter the slope of the SMC, the lower the level of risk aversion and a shift in the SML casued by increased risk aversion will cause the risk-free rate to decrease.
Explanation:
The Security Market Line (SML) can help to determine whether an investment product would offer a favorable expected return compared to its level of risk.
As an investment in a company's common stock becomes more risky for shareholders, Asset A will change its position on the SML
Any change in the risk profile of an asset that signifies a change in that investment's primary risk factors or its market risk will cause a movement along the SML.
For example, the real interest rate in the economy might change; inflation may pick up or slow down; or a recession can occur and investors become generally more risk-averse.
However, a shift in the SML casued by increased risk aversion will cause the risk-free rate to decrease.
