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(5) Suppose investors raised their inflation expectations by 3 percentage points over current estimates as reflected in the 3.0% risk-free rate. What effect would higher
(5) Suppose investors raised their inflation expectations by 3 percentage points over current estimates as reflected in the 3.0% risk-free rate. What effect would higher inflation have on the SML. and on the returns required on high-and low-risk securities? (7) Suppose instead that investors' risk aversion increased enough to cause the market risk premium to increase by 3 percentage points. (Inflation remains constant.) What effect would this have on the SML and on returns of high-and low-risk securities? Scenario 1: Scenario 2: wivhtion isya tigh
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