Aplia Assignment Week14 - Sp22 - Risk and Rates of Return The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. CHC). Based on the graph, complete the table that follows: 100 120 REQUIRED RATE OF RETURN (Percent) 8.0 Robum on HC's Stock 40 0 0.5 15 1.0 RISK (Beta) 20 Value CAPM Elements Risk-free rate() Market risk premium (RPM) Happy Corp. stock's beta Required rate of retum on Happy Corp, stock An analyst believes that inflation is going to increase by 3.0% 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's new required return. Then, on the graph, use the green points (rectangle symbols) to plotthe new SM. suggested by this analyst's prediction Happy Corp.s new required rate of return is Tooltip: mouse over the points on the graph to see their coordinates 20 16 New ML PORED RATE OF RETURN(Percent) CENGAGE MINDTAP Aplia Assignment Week 14 - Sp22 - Risk and Rates of Return 20 16 New SML 2 REQUIRED RATE OF RETURN (Percent) 04 0.8 12 RISK (Beta) 16 2.0 The SML helps determine the risk-aversion level among investors. The steeper the slope of the SML, the the level of risk aversion Which of the following statements best describes the shape of the SML ir investors were not at all risk averse? The SML would have a positive slope, but the slope would be flatter than it would be if Investors were risk averse The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse. The SML would be a horizontal line, The SML would have a negative slope