Use the letter in front of the statement to answer the questions that follow. Read all the options first. The letter may be used to answer more than one question. It increases by 3% It decreases by 3% It increases, but not proportionately It decreases, but not proportionately No change, remains the same The SML shifts upward, but the slope remains constant The SML shifts downward, but the slope remains constant The SML pivots upward, and the slope becomes steeper The SML pivots downward, and the slope becomes flatter ASSUME THAT INFLATION IS EXPECTED TO INCREASE BY 3% THIS YEAR. What would happen to the risk free rate, r_rf What would happen to the market rate, r_m What would happen to the required rate, r What would happen to the slope of the SML NOW ASSUME THAT INFLATION WIL NOT INCREASE, BUT INVESTORS BECOME MORE AVERSE TO RISK, THUS REQUIRING AN ADDITIONAL 3% RETURN ON THEIR INVESTMENTS. What would happen to the risk free rate, r_rf What would happen to the market rate, r_m What would happen to the required rate, r What would happen to the slope of the SML