C$10$: $11.$ Changes to the security market line An analyst believes that inflation is going to increase by $2\mathrm{.}0\%$ 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.$\text{'}$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.$\text{'}$s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates.

The SML helps determine the risk$-$aversion level among investors. The steeper the slope of the SML$,$ the higher grad the level of risk aversion. Which of the following statements best describes a shift in the SML caused by increased risk aversion?

The risk$-$free rate will remain constant.

The risk$-$free rate will decrease.

The risk$-$free rate will increase.

$***$ PLEASE ANSWER ACCORDING TO EVERYTHING THAT NEEDS TO BE ANSWERED$/$ CORRECTED ON THE PICTURE TO GET A POSITIVE FEEDBACK $***$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: