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8. The SML and changes in the market risk premium Aa Aa An analyst believes investors' attitudes toward risk will change, and thinks the market
8. The SML and changes in the market risk premium Aa Aa An analyst believes investors' attitudes toward risk will change, and thinks the market risk premium will increase from 5% to 8%. The risk-free rate is currently 5.0% and will remain unchanged. Use the graph below to plot the current SML and the new SML if this analyst's beliefs turn out to be right. REQUIRED RATE OF RETURN 1%] 20 18 16 14 12 10 Current SML New SML 0.0 0.5 1.0 1.5 2.0 RISK (Betal Help Clear All Which kind of stock is most affected by an increase in the market risk premium? (In other words, which stocks see the biggest change in their expected returns?) O All stocks are affected the same, regardless of beta O Low-beta stocks O High-beta stocks O Medium-beta stocks
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