Suppose the risk-free rate of return is currently 8% (r*=4) in Bangladesh, and market

(average) return is expected to be 13%.

a. What is the required rate of return for a stock with a beta coefficient () equal to 2.0 and

0.5? Use your findings to graph the security market line (SML).

b. As a rational investor your expectation is that, because of Covid-19 the inflation rate may

increase. Show the changes in SML if the inflation rate increases by 3%.