Problem 7-01 Assume that you expect the economy's rate of inflation to be 3 percent, giving an RFR of 7 percent and a market return (RM) of 13 percent. a. Choose the correct SML graph under these assumptions. The correct graph is -Select- . Security market Line A. Rate of Return 1 0.14 0.12 RER B Rate of Return 0.227 018 0.167 0.12 0.2+ 0.00! RER 0.04+ Systematisk (Beta) Security market Line 0.147 0.2+ RFR 0.007 -0.047 Systematic Risk (Beta) Security market Line D. 0.144 0.12 RFR 0.00 Systematisk Beta be parallel to the original SMLA. b. Subsequently, you expect the rate of inflation to increase from 3 percent to 4 percent. What effect would this have on the RFR and the RM? A change in risk-free rate, with other things being equal, would result in a new SMLD, which would intercept with the -Select- axis at the new risk-free rate and -Select- Choose the correct SML graph. The correct graph is -Select- . Security market Line A. Rate of Return 0.187 0.14 012 RR 0.00 0.027 Systematic Risk Beta) Security market Line B. Rate of Return 1 0.18 0.16 0.14 PER 0.00 - 0.04+ Security market Line 0.146- 0.087 RI 0.04 - 0.027 Systematit Risk Beta) Security market Line Rate of Return 1 0.22+ 0.187 0.127 RRR 0.00 -0.067 c. Choose an SML on the same graph to reflect an RFR of 8 percent and an RM of 17 percent. The correct graph is -Select- . Security market Line A. Rate of Return 0.22 ME B. of return 010 A SMILE Security market Line Bote of Betun 0.14 0.00 Security market Line 0.18 Z EM Systemak eta How does this SML differ from that derived in Part b? Round your answer to two decimal places. New SMLC will have an intercept at and a -Select- 4 slope so it -Select- be parallel to SMLa