The following graph plots the current security market line (SML) and Indicatos he return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: ? 200 180 120 Return on HC's Stock REQUIRED RATE OF RETURN (PI BO 40 0 0.5 15 20 10 RISK (Beta) Value CAPM Elements Risk-free rate (TRE) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp, stock An analyst believes that inflation is going to increase by 2,040 next year, while the market risk premium will be unchanged. The analyst use the Capital Asset Pricing Model (CAPM) Cos'the current SML Calculate Happy Corp.'s new un. 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 Tooltips Mouse over the points on the graph to see their coordinates Now SML EQUIRED FATE OF RETURN Pero RE 04 to 20 08 12 RISK (Bota The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML Which kind of stock is most affected by changes in risk aversion (In other words, which stocks see the biggest change in their required returns?> Mediumbeta stocks High-beta stocks Low beta stocles All stocis affected the same, regardless of beta 11. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Hapu (HC). Based on the graph, complete the table that follows: 2 200 100 12.0 Return on HC's Stock REQUIRED RATE OF RETURN (Percent) 0 9 48F Clear Value CAPM Elements Risk free rate (TRY) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 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 analys the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by the analyst's prediction Happy Corp.'s new required rate of return is Tooltip: Mouse over the points on the graph to see their coordinates. 20 New SML 10 12 REQUIRED RATE OF RETURN (Percent) 0 10 20 0 04 0.8 12 RISK (Beta the slope of the SML The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the forted by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns? The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?) Medium-beta stocks High-beta stocks O Low-beta stocks All stocks affected the same, regardless of beta The following graph plots the current security market line (SML) and Indicatos he return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: ? 200 180 120 Return on HC's Stock REQUIRED RATE OF RETURN (PI BO 40 0 0.5 15 20 10 RISK (Beta) Value CAPM Elements Risk-free rate (TRE) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp, stock An analyst believes that inflation is going to increase by 2,040 next year, while the market risk premium will be unchanged. The analyst use the Capital Asset Pricing Model (CAPM) Cos'the current SML Calculate Happy Corp.'s new un. 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 Tooltips Mouse over the points on the graph to see their coordinates Now SML EQUIRED FATE OF RETURN Pero RE 04 to 20 08 12 RISK (Bota The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML Which kind of stock is most affected by changes in risk aversion (In other words, which stocks see the biggest change in their required returns?> Mediumbeta stocks High-beta stocks Low beta stocles All stocis affected the same, regardless of beta 11. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Hapu (HC). Based on the graph, complete the table that follows: 2 200 100 12.0 Return on HC's Stock REQUIRED RATE OF RETURN (Percent) 0 9 48F Clear Value CAPM Elements Risk free rate (TRY) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 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 analys the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by the analyst's prediction Happy Corp.'s new required rate of return is Tooltip: Mouse over the points on the graph to see their coordinates. 20 New SML 10 12 REQUIRED RATE OF RETURN (Percent) 0 10 20 0 04 0.8 12 RISK (Beta the slope of the SML The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the forted by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns? The SML helps determine the level of risk aversion among investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?) Medium-beta stocks High-beta stocks O Low-beta stocks All stocks affected the same, regardless of beta
