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 12 percent Choose the correct SML graph under these assumptions The correct graph is Select graph Agraph Bgraph Cgraph DItem 1 A B C D Subsequently, you expect the rate o...

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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 (R_M) of 12 percent.

Choose the correct SML graph under these assumptions.
The correct graph is -Select-graph Agraph Bgraph Cgraph DItem 1 .

A.

B.

C.

D.
Subsequently, you expect the rate of inflation to increase from 4 percent to 5 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 Agraph Bgraph Cgraph DItem 4 .

A.

B.

C.

D.
Choose an SML on the same graph to reflect an RFR of 9 percent and an R_M of 15 percent.
The correct graph is -Select-graph Agraph Bgraph Cgraph DItem 5 .

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-samedifferentItem 7 slope so it -Select-willwill notItem 8 be parallel to SML_a.

A. Security market Line Rate of Return 0.2 0.18 0.16 0.14 0.12 SMLa RF Ra 0.08 0.06 0.04 0.02 Systematic Risk (Beta) B. Security market Line Rate of Return 0.22 0.2 0.18 0.16 0.141 0.121 SMLa 0.1 0.08 RF Ra 0.06 0.04 0.02 Systematic Risk (Beta) C. Security market Line Rate of Return 0.227 0.187 0.16+ 0.141 1 0.121 SMLa 0.11 RF Ra 0.08 0.06 0.04 0.02 Systematic Risk (Beta) Security market Line Rate of Returni 0.22 0.27 0.181 0.167 0.14 0.120 SMla 1 RF Ra 0.067 0.02 Systematic Risk (Beta) A. Security market Line Rate of Return 0.22 0.21 0.187 0.16 SMLb SMLa 0.12 RFRE=RFR 0.087 0.06 0.02 1 Systematic Risk (Beta) B. Security market Line Rate of Return +++ 0.22 0.2+ 0.18 0.16 SML SMLa RFRb RFRA 0.06 0.04 0.02 Systematic Risk (Beta) c. Security market Line Rate of Return 0.22 0.18 0.16 S MLD SMLa 0.121 0.1 RFRE=RFRA 0.08 0.04 0.02 Systematic Risk (Beta) D. Security market Line + Rate of Return 0.22 0.2 0.14 0.120 SMLb SMLa 0.1 RFRb RFRA 0.06 0.04 0.02 1 Systematic Risk (Beta) A. Security market Line Rate of Return 0:18 0.161 SMLC 0.14 0.12 SMLL SMLA RFRb 0.08 RFRC=RFR 0.06+ 0.02 1 Systematic Risk (Beta) B. Security market Line Rate of Return 0.2 0.181 0.161 SMLC 0.12 S MLL SMLa RFRC=RFRb RFRA 0.08 0.06 0.02 Systematic Risk (Beta) c. Security market Line Rate of Returni 0.18 SMLC S MLb SMLa 0.12 RFRC RFRb=RFRa 0.02 04 Systematic Risk (Beta) Security market Line Rate of Return 0.221 0.2 0.18 0.16 SMLC 0.14 - SMLb SMLa 0.12 0.1 RFRc RFRE=RFRA 0.08 0.06 0.04 0.02 Systematic Risk (Beta)