Risk$-$free rate $(r_{RF})$

Market risk premium $(R{P}_M)$

Happy Corp. stock's beta

Required rate of return on Happy Corp. stock

An analyst believes that inflation is going to increase by $2\mathrm{.}0\%$ 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.$$s new required return. Then, on the graph, use the green points $($rectangle symbols$)$ to plot the new SML suggested by this analyst$$s prediction.

Happy Corp.$$s new required rate of return is $.$

Tool tip: Mouse over the points on the graph to see their coordinates.