Conceptual Overview: Explore how inflation changes the security market line. The Security Manket Lne denes the requed ate of eturn for a securty to be worth buyng or hodeg The ine depeted e n the gah s the sum of the rabee retum fn the sader) and a ma premum detemined by the maket premum (RPM eued by he securty's beta coeticent for r Drag the sder beiow the graph to change the anount off the rabee retun These changes reeet ehangesn on Deag et or nght on the graph te move the cursor to evaluate securtes w coefcents n ts gaph the maket.sk prems ed t 5% t beta rrRPMbeta 6%+5 %.1 6 %+5.00%-11.00% 1-6" Reg Re of Retarn s R 1. If the risk-free return were 4.0% and a security's beta coefficient were 2.0. what would be the required rate of return for the security? a. 4% b. 5% C. 10% d. 14% Select 2. If the risk-free return (inflation) increases by 2 percentage points, the required rate of return a. stays the same for all securities b. increases the same 2 percentage points for all securities eases for some securities and decreases for others depending on the beta coefficient d. cannot be determined without more information -Select- 3. If the risk-free return (inflation) increases by 2 percentage points, then for the security market line a. both the y-intercept and the slope remain the same b. the y-intercept changes and the slope remains the same c. the y-intercept remains the same and the slope changes d. both the y-intercept and the slope change seect 1. If the market-risk premium were 4% and a security's beta coefficient were 2.0, what would be the required rate of return for the security? (The risk-free return is fixed at 6% in this graph.) a. 4% b. 6% c. 10% d. 14% Selest 2. If the market-risk premium doubles (say, from 4% to 8% ) , the required rate of return for a security a. more than doubles b. exactly doubles c increases by less than double d. decreases Seect: The Securty Maet Lne denes be m edehn toaecurty o be wm bayng or kng The e dged mutged by he secuhy's beta coe or De deteed by the maket ma premu he ma tee retum (fthe sder) and a m pe m e gaph e aferent betacoecens in gph e abe m gaph tohange e o bteeen a secas b con t and he amount of the maket a pr m Drag or agt on the grape to move the casor to evaae secutes w beta 6%+5 % . 1- 6% +5.00 %-11.00% rF RPu Re Rae of Retam as uda Coccen RPM 5 to