chap 8

The SML line can change due to expected Inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. Ir risk aversion changes, then the SML plotted on a graph wil rotate up or down becoming more or less steep it investors become more or less risk verse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses Quantitative Problemi You ardowen the following Information for Wine and Cork Enterprises (WCE) 29 - 10%; RP 8%, and beta=1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. 1 If inflation increases by 2% but there is no change in investors' risk aversion, what is wc's required rate of return now? Do not round Intermediate calculations, Round your answer to two decimal places Assume now that there is no change in Inflation, but risk aversion increases by 19 What is wcEs required rate of retum now? Do not round Intermediate calculation round your answer to two decimal places If inflation incremes dy and risk version increases by what i wars required rate of return non? Do not round Intermediate calculations, Round your answer to two decimal places A