Shifts in the security market line Assume that the risk-free rate, RF, is currently 8%, the market return, I'm, is 12%, and asset A has a beta, PA, of 1.10. a. Draw the security market line (SML) on a set of "nondiversifiable risk (x axis) - required return (y axis) axes. b. Use CAPM to estimate the required return, rA, on asset A. Which of the following graphs represents the security market line (SML) and the required return for asset A? C. Assume that as a result of recent economic events, inflationary expectations have declined by 2%, lowering RF and I'm to 6% and 10%, respectively. Which of the following graphs represents the new SML and shows the new required return for asset A? d. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 1%, to 13%. Ignoring the shift in part b, which of the following graphs shows the new SML and the new required return for asset A? e. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets? Shifts in the security market line Assume that the risk-free rate, RF, is currently 8%, the market return, I'm, is 12%, and asset A has a beta, PA, of 1.10. a. Draw the security market line (SML) on a set of "nondiversifiable risk (x axis) - required return (y axis) axes. b. Use CAPM to estimate the required return, rA, on asset A. Which of the following graphs represents the security market line (SML) and the required return for asset A? C. Assume that as a result of recent economic events, inflationary expectations have declined by 2%, lowering RF and I'm to 6% and 10%, respectively. Which of the following graphs represents the new SML and shows the new required return for asset A? d. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 1%, to 13%. Ignoring the shift in part b, which of the following graphs shows the new SML and the new required return for asset A? e. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets