Points: $0$ of $15$

Shifts in the security market line Assume that the risk$-$free rate, $R_F,$ is currently $6\%,$ the market return, $r_m,$ is $13\%,$ and asset A has a beta, $b_A,$ of $1\mathrm{.}09$

a$.$ Use CAPM to estimate the required return, $r_A,$ on asset $A.$ Which of the following graphs represents the security market line $($SML$)$ and the required return for asset A$?$

b$.$ Assume that as a result of recent economic events, inflationary expectations have declined by $1\%,$ lowering $R_F$ and $r_m$ to $5\%$ and $12\%,$ respectively. Which of the following graphs represents the new SML and shows the new required return for asset $A?$

c$.$ Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by $2\%,$ to $15\%.$ Ignoring the shift in part b$,$ which of the following graphs shows the new SML and the new required return for asset $A?$

a$.$ The required rate of return on asset $A$ is $6.($Round to two decimal places.$)$