If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's retum is to compensate the investor for risk. to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected inflation and risk aversion, If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse, A firm can influence market risk (hence its beta coeffcient) through changes in the composition of its assets and through changes in the amount of debt ir uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): TW=4%;TM=10%;RPM=6%,andbeta=1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two dedinal places. \% If inflation increases by 2% but there is no change in investors' risk aversion, what is wCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. W Assume now that there is no change in inflation, but risk aversion increases by 2%. What is wcE's required rate of return now? Do not round intermedlate calculations. Raund y answer to two decimal places. 46 If infletion increases by 2% and risk aversion increases by 2%, what is wces required rate of retum now? Do not round intermediate calculations. Round your answer to two decimal places. % If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's retum is to compensate the investor for risk. to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected inflation and risk aversion, If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse, A firm can influence market risk (hence its beta coeffcient) through changes in the composition of its assets and through changes in the amount of debt ir uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): TW=4%;TM=10%;RPM=6%,andbeta=1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two dedinal places. \% If inflation increases by 2% but there is no change in investors' risk aversion, what is wCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places. W Assume now that there is no change in inflation, but risk aversion increases by 2%. What is wcE's required rate of return now? Do not round intermedlate calculations. Raund y answer to two decimal places. 46 If infletion increases by 2% and risk aversion increases by 2%, what is wces required rate of retum now? Do not round intermediate calculations. Round your answer to two decimal places. %