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11. Changes to the Security Market Line The following graph plocs the current Secunty Market Line (SML) and indicates the return that ifivestors require from holding stock from happy Corp. (HC). Based on the graph, complete the table that follows. An analyst believes that inflation is poing to increase by 2.0% 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 Hapoy Corp's new required retum. Then, on the grash, plot the new SML sugoested by this analrat's predictise. An anblyst belleves that inflacon is going to increase by 2,0+b ever the next year, while the market risk premium will be whchanged. The analyst uses the Capical Asset Fricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, en the graph, plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is Tool tip: Click on the points on the praph to see their coordinates. The SML helps determine the level of risk aversion among imvestors. The higher the level of nisk aversion, the Which kind of stock is most affected by changes in risk aversion? (in other words, which stocks see the biggest chanpe in their required returns?) All stocks are affected the same, regardless of beta Medium-beta stocks Low-beta stocks High-beta stocks