34. Changesto the security market line 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: REQUIRED RATE OF RETURN (Percent) - - - - - - - - - 0.5 1.5 1.0 RISK (Beta) CAPM Elements Value Risk-free rate (TRF) 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 increase by 2.80% 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. Happy Corp.'s new required rate of return is Value CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 3.38% 8.10% An analyst believes that inflation is going to increas uses the Capital Asset Pricing Model (CAPM). The fo 4.50% % over the next year, while the market risk premium will be unchanged. The analyst aph plots the current SML. 5.85% 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. Happy Corp.'s new required rate of return is Value CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 1.80 An analyst believes that inflation is going to increase 0.96 uses the Capital Asset Pricing Model (CAPM). The follo % over the next year, while the market risk premium will be unchanged. The analyst graph plots the current SML. 0.60 Jraph, use the rectangle symbols to plot the new SML suggested by this analyst's Calculate Happy Corp.'s new required return. Then, prediction. Happy Corp.'s new required rate of return is prediction. Happy Corp.'s new required rate of return is 14.52% 30.36% 13.20% 201 9.24% New SML REQUIRED RATE OF RETURN (Percent) 0.4 1.6 20 0.8 1.2 RISK (Beta) CAPM Elements Value Risk-free rate (RF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 10.40% An analyst believes that inflation is going to increa: V over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The f 14.56% aph plots the current SML. 8.84% bph, use the rectangle symbols to plot the new SML suggested by this analyst's Calculate Happy Corp.'s new required return. Then prediction. 13.00% Happy Corp.'s new required rate of return is CAPM Elements Value Risk-free rate (TRF) Market risk premium (RPM) 12.50% Happy Corp. stock's beta Required rate of return on Happy Corp. stock 5.50% 5.00% An analyst believes that inflation is going to increa: uses the Capital Asset Pricing Model (CAPM). The 2.75% Yo over the next year, while the market risk premium will be unchanged. The analyst pph 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. Happy Corp.'s new required rate of return is CAPM Elements Value Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 10.40% An analyst believes that inflation is going to increa: Yo over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The f 14.56% pph plots the current SML. 8.84% bph, use the rectangle symbols to plot the new SML suggested by this analyst's Calculate Happy Corp.'s new required return. Then prediction. 13.00% Happy Corp.'s new required rate of return is
