Assume that the latest CPI data suggests that the annual U.S. inflation in 2019 would rise to to 2.5% (vs. previous estimate of 2.1%). What will happen to the stock returns required by investors according to the CAPM model?

	1.	The CAPM would indicate that the returns on every stock risel by the amont of inflation differential (i.e., parallel upward shift in SML).
	2.	Since the inflation risk is spurious, the CAPM-based returns do not change with the change in expected inflation.
	3.	The CAPM would indicate that the returns on every stock fall by the amont of inflation differential (i.e., parallel downward shift in SML).
	4.	Because most rational investors hold diversified portfolios, they are automatically protected against the inflation risk and thus there should be no relation between CAPM returns and expected inflation.