The following graph plats the current security market line (SML) and indicates the return that investors are from holding stock from Hapor Corp CHC), based on the graph, complete the table that follows 200 180 De REQUIRED RATE OF RETURN( Pro) 5 Return on HC's Stock 40 DES 10 RISK (Beta) Value CAPM Elements Risk-free rate (ERP) Market risk premium (RPM) Happy Corp, stock's beta Required rate of return on Happy Corp. stock 4.0% 6.0% 0.6 7.6% An analyst believes that inflation is going to increase by 2.0% 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. 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 Tooltip: Mouse over the points on the graph to see their coordinates. Tooltip: Mouse over the points on the graph to see their coordinates 2 20 New SML 16 12 REQUIRED RATE OF RETURN (Percent) D 16 20 04 1.2 RISK (Beta) ther the level of risk avension, the the slope of the SML REQUIRE 0.4 16 20 08 12 RISK (Beta) The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML Which of the following statements best describes the shape of the SML i investors were not at all risk averse? The SML would have a negative slope. The SML would have a positive slope, but the slope would be fatter than it would be if Investors were risk overse. The SML would have a positive slope, but the slope would be steeper than it would be it investors were risk averse. The SML would be a horizontal line. Grade It Now Save & Continue Continue without saving