11. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: 20.0 100 120 Return on HC's Stock REQUIRED RATE OF RETURN (Percent) 1 80 1 . 40 . 1 1 0.5 1.5 20 10 RISK Bela) 12 REQUIRED RATE OF RETUR 0.4 10 20 12 RISK (Beta) the level of risk aversion. The SML helps determine the risk-aversion level among investors. The steeper the slope of the SML, the Which of the following statements best describes a shift in the SML caused by increased risk aversion? The risk-free rate will increase. The risk-free rate will decrease. The risk-free rate will remain constant. 11. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: 200 12.0 Return on HC's Stock REQUIRED RATE OF RETURN(Percent) 30 1 1 10 0.5 15 20 Value CAPM Elements Risk-free rate (TRP) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction Happy Corp.'s new required rate of return is Tooltip: Mouse over the points on the graph to see their coordinates. Happy Corp.'s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. 20 New SML 10 12 REQUIRED RATE OF RETURN Percent) 12 RISK Beta Assignment - Risk and Rates of Return 12 REQUIRED RATE 0.4 18 20 03 12 RISK (Beta) the level of risk aversion The SML helps determine the risk aversion level among investors. The steeper the slope of the SML, the Which of the following statements best describes a shift in the SML caused by increased risk aversion? The risk-free rate will increase The risk-free rate will decrease The risk free rate will remain constant Grade It Now Save & Continue Continue without saving 08: Assignment - Risk and Rates of Return 0 0 0.5 1.0 1.5 20 RISK (Beta) Value CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 5.0% 2.8% 5.5% An analyst believes that inflation is going to increa Po over the next yea the Capital Asset Pricing Model (CAPM). The follow 10.4% plots the current si Calculate Happy Corp.'s new required return. Then, on the graph, use the green analyst's prediction. Happy Corp.'s new required rate of return is Tooltip: Mouse over the points on the graph to see their coordinates Ch 08: Assignment - Risk and Rates of Return 0 0.5 1.0 RISK (Beta) 1.5 2.0 Value CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 8.1% An analyst believes that inflation is going to increa the Capital Asset Pricing Model (CAPM). The follow 4.5% % over the next y 3.4% plots the current 5.9% graph, use the gree. Calculate Happy Corp.'s new required return. Then analyst's prediction Happy Corp.'s new required rate of return is Tooltip: Mouse over the points on the graph to see their coordinates. iment - Risk and Rates of Return 0 0 0.5 1.0 RISK (Beta) 1.5 Value CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increa che Capital Asset Pricing Model (CAPM). The follow 1.9 Calculate Happy Corp.'s new required return. Then nalyst's prediction 2.8 10% over the next h plots the curren 1.2 graph, use the gre 0.3 appy Corp.'s new required rate of return is poltip House over the points on the graph to see their coordinates Risk and Rates of Return 0.5 1.0 RISK (Beta) 1.5 2.0 CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value 10.4% An analyst believes that inflation is going to increa Vo over the next year the Capital Asset Pricing Model (CAPM). The follow 8.8% plots the current SML alculate Happy Corp.'s new required return. Then nalyst's prediction 9.4% raph, use the green po appy Corp.'s new required rate of return is 13.0% Bitip: Mouse over the points on the graph to see their coordinates AP G Ch 08: Assignment - Risk and Rates of Return An analyst believes that inflation is going to increase by 2.0% over the next the Capital Asset Pricing Model (CAPM). The following graph plots the curren Calculate Happy Corp.'s new required return. Then, on the graph, use the gre analyst's prediction. Happy Corp.'s new required rate of return is 28.5% Tool tip: Mouse over the points on the graph leir coordinates. 12.4% 13.6% 20 8.7% 16 TURN (Percent) 2 New SML REQUIRE ol 0.4 08 1.2 10 20 RISK (Beta) The SMI. helps determine the risk-aversion level among investors. The steeper the slope of the SML, the the level of risk aversion, Which of the following statements best describes a shift in the SML caused by increased risk aversion? lower higher The risk-free rate will increase The risk-free rate will decrease. The risk-free rate will remain constant. Grade It Now Sana Conti