Ch 08: Assignment Risk and Rates of Return The following graph plots the current security market line (SML) and indicate the return that investors require from holding stock from Happy Corp (HC). Based on the graph, complete the table that follows ? 00 REQUIRED RATE OF RETURN Plum HCX Stock B HIEX (B) CAPM Elements Riservate Market riik prema (RP Happy Corp, stocks buta Required rate of return on Happy Corp. Stock An analyst believes that inflation is going to increase by 3.0% the next year, while the market rik premium will be unchanged. The analysis the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corps new required retum. Then, on the graph, ie the green ons rectangle symbols) to plat the SML ested by this analyst's prediction Happy Cornwird rate of returns Tooltip: Mouse over the points on the graph to see their coordinates 20 New SNL REQUIRED RATE OF RETURN Pro) HEXB The SML help determine the risk version aval among investors. The higher the love of risk version, the thes of the SML Which of the following statements best describes a still in the SML caused by increased risk aversion? The risk-free rate will decrease. O The risk-free rate will increase The risk-free rate will remain constant