(Security market line) If the risk-free rate of return is 5 percent and the expected rate of return on the market portfolio is 12 percent. a. Graph the security market line (SML). Also, calculate and label the market risk premium on the graph. b. Using your graph from question a, identify the expected rates of return on a portfolio with a beta of 0.60 and a beta of 1.62, respectively. c. Now assume that because of a financial crisis the economy slows down and anticipated inflation drops. As a result, the risk-free rate of return drops to 3 percent and the expected rate of return on the market portfolio drops to 10 percent. Draw the resulting security market line ow assume that because o economic ears investors have become more risk averse, demandin a er eturn on a assets at have any risk This results in a cre en ee ecte rate return on he mark to 17 percent (with the risk-free rate equal to 5 percent). Draw the resulting SML. What can you conclude about the effect of a financial crisis on expected rates of return? portfol What can you conclude about the effect of a financial crisis on expected rates of return? (Select the best choice below.) A. A financial crisis always increases the slope of the security market line and thus the required return OB. A financial crisis always decreases the slope of the security market line and thus the required returm c. A financial cris can have various effects such as increasing the slope ofthe security marke in easing expected returns and or shifting the security market line down at the same slope, decreasing the expected returns