12.0 REQUIRED RATE OF RETURN (Percent) off 8.0 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. (Tool tip: Mouse over the points in the graph to see their coordinates.) 20.0 16.0 0.5 1.0 RISK (Beta) 1.5 2.0 CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value 2.00% An analyst believes that inflation is going to increase by 4.00% 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 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.'s new required rate of return is F RETURN (Percent) 20 16 2 New SML REQUIRED RATE OF RETURN (Percent) 0+ of 8 16 16 20 20 04 0.8 RISK (Beta) 1.2 1.6 2.0 New SML CAPM Elements Risk-free rate (TRF) Value 2.00% Market risk premium (RPM) 2.00% Happy Corp. stock's beta Required rate of return on Happy Corp. stock 5.00% 2.20% An analyst believes that inflation is going to increas % over the next year the Capital Asset Pricing Model (CAPM). The followi 1.10% plots the current SML Calculate Happy Corp.'s new required return. Then, on the graph, use the rectang prediction. (Tool tip: Mouse over the points in the graph to see their coordinates.) Happy Corp.'s new required rate of return is CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Value 2.00% 10.80% 6.00% % over the nex lots the curren Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increa the Capital Asset Pricing Model (CAPM). The follow 4.50% 7.80% Calculate Happy Corp.'s new required return. Then, on the graph, use the re prediction. (Tool tip: Mouse over the points in the graph to see their coordina Happy Corp.'s new required rate of return is CAPM Elements Risk-free rate (IRF) Market risk premium (RPM) Value 2.00% Happy Corp. stock's beta Required rate of return on Happy Corp. stock 1.0 An analyst believes that inflation is going to increase by 1.50 the Capital Asset Pricing Model (CAPM). The following g 0.50 I over the next year, bts the current SML. Calculate Happy Corp.'s new required return. Then, on 0.80 bh, use the rectangle prediction. (Tool tip: Mouse over the points in the graph to see their coordinates.) Happy Corp.'s new required rate of return is Risk-free rate (IRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increa the Capital Asset Pricing Model (CAPM). The follow Calculate Happy Corp.'s new required return. Then prediction. (Tool tip: Mouse over the points in the 2.00% 8.00% / over the next year 11.20% lots the current SML 6.80% aph, use the rectang. 10.00% e their coordinates.) Happy Corp.'s new required rate of return is CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Value 2.00% Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 4.00% over the next y the Capital Asset Pricing Model (CAPM). The following graph plots the current S Calculate Happy Corp.'s new required return. Then, on the graph, use the rectan prediction. (Tool tip: Mouse over the points in the graph to see their coordinates Happy Corp.'s new required rate of return is t) 20 20 8.40% 12.00% 27.60% 13.20% New SML