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11. Changes to the security market line The following gragh piots the current security market...

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11. Changes to the security market line The following gragh piots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC), Based on the graph, complete the table that follows: An analyst believes that inflation in going to increase by 3.0% over the next year, while the market risk premlum willbe unchanged. The analyst uses the Capitsl Asset Pricing Model (CApM). The following graph plots the current SML. Calculate Happy Corpis new required return. Then, on the graph, use the green polnts (rectangle symbols) to plot the new sML- suggested by this analyst's prediction Happy Corpis new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. The SML helpe determine the level of risk aversion among investors. The steeper the slope of the SML. the the fevel of risk aversion. Which kind of stock is most affected by ehanges in risk aversion? (In other words, which stocks see the biggeit change in their required returms?) High-beta stocics All stocks affected the same, regardiess of beta Medimebech stociss Kow-beta stociks

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