An analyst believes that inflation is going to increase by $3\mathrm{.}0\%$ 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.$\text{'}$s new required return. Then, on the graph, use the green points $($rectangle symbols$)$ to plot the new SML suggested by this

analyst's prediction.

Happy Corp.$\text{'}$s new required rate of return is

Tool tip: Mouse over the points on the graph to see their coordinates.

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?$)$

Medium$-$beta stocks

High$-$beta stocks

All stocks affected the same, regardless of beta

Low$-$beta stocks