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Ch 08. Assignment Risk and Rates of Retum 11. Changes to the security market line The following graph plots the current security market sine (5ML) and indicates the return that investors require from holding stock from Happy Corp. CHC). Based on the graph, complete the table that follow 00 HEOLRIORATE OF RETURN Port Rtum on HC Stock RAK Ch 08: Assignment - Risk and Rates of Return Value 2.04 CAPM Elements Bisk-free rate (1) Market risk premium (RPM) Happy Corp, stock's beta Required rate of return on Happy Corp, stock 6.09 1.0 8.0% An analyst belleves that inflation is golng to increase by 3.0% 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 11.0% Tooltip: mouse over the points on the graph to see their coordinates: 1 New SML JAN Percent Ch 08: Assignment - Risk and Rates of Return Tooltip! Mouse over the points on the graph to see their coordinates New SML REQUIRED RATE OF RETURN (Percent) 014 10 20 12 RISK (Beta) The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML ng Microsoft Word O... Syllabus for ECON.. Google YouTube The Difference Be... EYL University MMHE Reader CENGAGE MINDTAP Ch 08: Assignment Risk and Rates of Return REQUIRED RATE OF RE 04 10 20 12 RISK (D) the slope of the SML The SML helps determine the risk aversion level among investors. The higher the level of risk aversion, the Which of the following statements best describes the shape of the SMi ir investors were not at all risk averte? The SML would have a positive slope, but the slope would be flatter than it would be if investors were risk averse The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse The SML would have a negative slope. The SML would be a horizontal line. Ch 08: Assignment Risk and Rates of Return REQUIRED RATE OF RED 12 20 RISK the slope of the SML The SHL help determine the risk-aversion level among investors. The higher the level of risk aversion, the Which of the following statements best describes the shape of the SML i investors were not at all risk avers steeper Hatter The SML would have a positive slope, but the slope would be fatter than it would be if Investors Verse The su would have a positive slope, but the slope would be steeper than it would be if investors were risk averse The SML would have a negative slopes The SML would be a horizontal line