Question
Assume that you expect the economys rate of inflation to be 4 percent, giving an RFR of 8 percent and a market return ( R
Assume that you expect the economys rate of inflation to be 4 percent, giving an RFR of 8 percent and a market return (RM) 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 RM?
A change in risk-free rate, with other things being equal, would result in a new SMLb, 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 SMLa.
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 RM 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 SMLc will have an intercept at and a -Select-(same different) slope so it -Select- (will, will not) be parallel to SMLa.
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