CAPM Elements

Risk$-$free rate $(r_{RF})$

Market risk premium $(R{P}_M)$

Happy Corp. stock's beta

Required rate of return on Happy Corp. stock

An analyst believes that inflation is going to increase by $2\mathrm{.}40\%$ 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 rectangle symbols to plot the new SML suggested by this analyst's prediction. $($Tool tip: Mouse over the points in the graph to see their coordinates.$)$

Happy Corp.$\text{'}$s new required rate of return is