CAPM Elements Value Risk-free rate (rRF) 2.0%

Market risk premium (RPM) 6.0%

Happy Corp. stocks beta 1.0

Required rate of return on Happy Corp. stock 8.0%

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 plot the new SML suggested by this analysts prediction. Happy Corp.s new required rate of return is .