Fox Enterprises must consider several investment projects, A through E, using the capital asset pricing model (CAPM) and its graphic representation, the security market line (SML). Relevant information is presented in the following table.

Item	Rate of Return	Beta
Risk-free asset	9%	0
Market portfolio	14%	1.00
Project A		1.5
Project B		.75
Project C		2.00
Project D		0
Project E		-0.50

a. Calculate the required return and risk premium for each project, given its level of nondiversifiable risk.

b. Use your finding in (a) to draw the security market line.

c. Discuss the relative nondiversifiable risk of projects A through E.

d. Assume that recent economic events have caused investors to become less risk averse, causing the market return to decline by 2%, to 12%. Calculate the new security market line on the same set of axes as used in (b).

e. Compare your finding in (a) and (b) with those in (d). What conclusions can you draw about the impact of a decline in investor risk aversion on the required return of risky assets.