The security market line (5ML) is an equation that shows the relationship between risk as measured by beta and the requited rates of return an individual securities. The SML equation is given below: Required return on Stock = Risk-free return + (Market risk premium) ( Stock's beta) If a stock's expected return plots on or abave the 5ML, then the stock's return is the stock's return is to compensate the investor for risk. to compensate the investor for risk. If a stock's expected return plots below the sML, The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotited on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market. risk (hence its beta coetficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the follawing infoemation for Wine and Cork Enterprises (WCE): n0=3%;ny=8%,RPw=5%, and beta =1.3 What is WCE's reguired rate of return? Do not round intermediate calculations. Round your answer to two decimal places. If inflation increases by 1% but there is no change in investors' risk aversion, what is wce's required rate of retum now? Do not round intermediate cakuiations. Round your answer to two decimal places. Assume now that there is no change in infistion, but risk aversion increases by 20\%. What is wcE's required rate of return now? Do not round intermed ate calculations. Round your answer to two decimal places. If inflation increases by 1% and tisk aversion increases by 2%, what is wCE's required rate of return now? Do not round intermediate calculations. Round your answer to two decimal places