Anita understands that the risk-free rate used in the CAPM is the government-issued treasury bill rate.Since thetreasury billhas norisk, any other investment having someriskwill have to have a higherrateof return than the risk-free rate in order to induce any investor to invest in that security.Anita is considering the stock ofAardvark Enterprisesand Zebra Enterprises. Aardvark Enterprises has a beta of 1.6 and Zebra Enterprises has a beta of 2.5. The risk-free rate is 3.5%, and the difference between the expected return on the market and the risk free is 9.0%.

The board of directors wants to know how the following events might cause stocks in general to change price, and whether they might cause Bunyan Lumber stock to change price.

a. the government announces that inflation unexpectedly jumped by 2% last month

b. the government reports that economic growth rate increases this year by 3% as expected

c. congress approves a surprise reduction in corporate tax rate from 25% to 22%

d. The CEO of Bunyan Lumber dies in a plane crash

Explain to the board the effect of these events on the stock market in general and Bunyan's stock.