Shifts in the security market lineAssume that the risk-free rate, Upper R Subscript Upper F, is currently 8%, the market return, r Subscript m, is 15 %, and asset A has a beta, b Subscript Upper A, of 1.12.

a.Use CAPM to estimate the required return, r Subscript Upper 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 Upper R Subscript Upper F and r Subscript m to 7% and 14%, 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 1 %, to 16%. Ignoring the shift in part b, which of the following graphs shows the new SML and the new required return for asset A?