An analyst believes that inflation is going to increase by 3.0% over the next year, while the man be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plo Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectang the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE OF RETURN (Percent) New SML 0.0 0.4 0.8 1.2 1.6 2.0 RISK (Beta) Clear All The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?) O Medium-beta stocks Low-beta stocks O All stocks affected the same, regardless of beta O High-beta stocks REQUIRED RATE OF RETURN (Percent) 20.0 Return on HC's Stock 0.0 0.5 1.0 1.5 1.5 2.0 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