The required return for an investor can be determined by using the Security Market Line (part of the CAPM) formula or by observing the graph for the Security Market Line.

Part a: What variable in the formula will change if investors feel there is an increase in inflationary expectations? Justify your answer. (5 points)

Part b: How will the investor's required return change as a result of the action in part a? Justify your answer. (4 points)

Part c: How will the graph change to reflect an anticipated increase in inflation? Justify your answer. (5 points)