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Please help. Thank you. 5. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return
Please help. Thank you.
5. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: (? 16.0 REQUIRED RATE OF RETURN(Percent) Return on HC's Stock RISK (Beta) Return on HC Stock REQUIRED RATE OF www RISK Beta W Value CAPM Elements Risle free rate (TRF) Market risk premium (RPM) Happy Corp. Soos beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going 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 Happy Corp. 's new required return. Then, on the graph, use the green points rectangle symbols) to plot the new SML suggested by this analyses prediction. Happy Corps ne required rate of retum is Tooltip: Mouse over the points on the graph to see their coordinates. (?) REQUIRED RATE OF RETURN (Percent) REQUIRED RATE OF RETURN RISK Beta The SML helps determine the risk-aversion level among investors. The steeper the slope of the SML, the Which of the following statements best describes the shape of the SML if investors were not at all risk averse? the level orieskaversion The SNL would have a positive slope, but the slope would be flatter than it would be if investors were risk averse The SNL Would be a horizontal line The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse The SML would have a negative slopeStep by Step Solution
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