$3.$ Suppose the market has experienced a combination of an increase in real interest rate and anticipated inflation that causes the risk$-$free rate to increase from $6\%$ to $8\%,$ but investors$$ risk aversion remains constant:

i$.$ What will happen to the market risk premium?

ii$.$ How does the CAPM show the effect of the increase in the risk$-$free rate on the SML$?$

iii. Explain what the slope of the security market line measures.

iv$.$ How does the CAPM show the effect of the measure you explained in $($iii$)?$

v$.$ What may cause a firm$$s beta to change?

vi$.$ If the changes you noted above lead to a higher or lower beta, what is the effect on the firm$$s required return?