Assume that you expect the economys rate of inflation to be 4 percent, giving an RFR of 8 percent and a market return (R_M) of 11 percent.

Choose the correct SML graph under these assumptions.

The correct graph is -Select-(graph A,graph B,graph C,graph D) .

A.
B.
C.
D.

Subsequently, you expect the rate of inflation to increase from 4 percent to 6 percent. What effect would this have on the RFR and the R_M?

A change in risk-free rate, with other things being equal, would result in a new SML_b, which would intercept with the -Select-verticalhorizontalItem 2 axis at the new risk-free rate and -Select-wouldwould notItem 3 be parallel to the original SML_a.

Choose the correct SML graph.

The correct graph is -Select- (graph A,graph B,graph C,graph D) .

A.
B.
C.
D.

Choose an SML on the same graph to reflect an RFR of 10 percent and an R_M of 15 percent.

The correct graph is -Select- (graphA, graph B, graph C, graph D) .

A.
B.
C.
D.

How does this SML differ from that derived in Part b? Round your answer to two decimal places.

New SML_c will have an intercept at and a -Select-(same different) slope so it -Select- (will, will not) be parallel to SML_a.