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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 Happy Corp. (HC). Based on the graph, complete the table that follows: An analyst believes that inflation is going to increase by 3.0% over the next year while the market risk premium will be unchanged. The analyst uses 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 this analyst's prediction. Happy Corp.'s new required rate of retum is Tool tip: Mouse over the points on the graph to see their coordinates. Tool tip: Mouse over the points on the graph to see their coordinates. The SML helps determine the risk-aversion level among investors. The steeper the slope of the SML, the the level of risk aversion. Which of the following statements best describes the shape of the SML if investors were not at all risk averse? The SML would have a positive slope, but the slope would be flatter than it would be if investors were risk averse. The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse. The SML would be a horizontal line. The SML would have a negative slope. 11. Changes to the security market tine (h+C) Based on the oraph, complete the table that follow: Calculate Happy Corp.'s new requared return. Then, on the graph, use the green points (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 EAPM Elements Bisk-Aree rabe ( tuat) Market itsk premium (2.PM) Hasey Corp. steck's beta Required tate of return on iapeer corp. stock hn analyid telleves that inflation is goind to incre the Capial Asset frieing Hodel (CADT), The follow lot the current sti. analrit's peechictian. hager Carpls Rew isquired rate of fetumn is Tool tig: Mouse mver the peints on the oraph ta see their coorginates Ch OB-Assignment - Rlisk and Rates of Retum CAPMtlementsRiskfreerate(rua)Marketriskpreinium(RTPM) Mappy Corp. sockis beta Required rate of return in Happy Corp, stock An analyat believes that inflation is qoing to increa L.0 2% over the nea vear, while the market fisk preeilum will be unchanged, The analive sses the Capital Asiet Pricing Model (CAPM). The follow plots the current 5.14. Calculate Hapoy Corp. Il new resuiced reharn. Then anayst is prediction. Hapoy Corpis nen required rate of return is Pool tipi Mouse over the points on the groph to see their coordinates. aralyst's prediction. Happy Compis new required rate af return is Tool tip: Moese Ever the points on the graph te see their cocrdinatei- Ch OE. Acsienment - Risk and plates of Retum the Capital Aase Pricing Model (Ccave4. The following graph glots the coment sivi. analyst's prediation. Tool tip: Mouse over the points on the graph to see their coordinates. The SML. heibs determine the risk-aversian level amang imvestars. The steeper the slope of the 5ML. the the level of risk aversian. Which of the following statements best describes the shape of the s.h if investors were not at all eik averse? The SML would have a positive slope, but the slope would be ffatter than it would be if inrestars aere rikk averse. The sML would have a positive slope, but the shope would be steeper than it would be if investons nere risk merit. The Sil moula be a horttontal line. The SHL would have a negative slope 11. Changes to the security market line The following oraph plots 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: Calculate Happy Corp.s new required return. Then, on the graph, use the green points (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 draph to see their coordinates. CAPM Elements Value Risk-free rate (rrp) Market risk premium (RPM) Happy Corp. stock's beta Pequired rate of return on Happy Corp. stock An analyst believes that inflation is going to increa. 4.5% over the next year, while the market risk premium will be unchanged. The analyst uses. the Capital Asset Pricing Model (CAPM). The follow plots the current SML. 6.096 Calculate Happy Corp.'s new required roturn. Then analyst's prediction. Happy Corpis new required rate of retum is Tool tip: Mouse over the points on the oraph to see their coordinates. New SML the next year, while the market tisk premium wil be unchanged. The analyst uses he current SML. se the green points (rectangle symbbols) to plot the new SML suggested by this Happy Corpis new required rate of return is Tool tip: Mouse over the points an the graph to see their coordinates. An analyst believes that inflation is going to increa 7.2% \% over the next year, while the market risk premium will be unchanged. The analyst uses. the Capital Asset Pricing Model (CAPM). The follow 10.0s6 plots the current SML. Calculate Happy Corpi's new required return. Then B.0\% raph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corpis new required rate of return is Fool Up: Mouse over the points on the graph to see their coordinates: An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses 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 5 ML 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 helgs determine the risk-averslon level among investors. The steeper the slope of the sML, the the level of tisk aversion. Which of the following statements best describes the shape of the SML if investors were not at all risk an The SML. would have a positlve slope, but the slope would be flatter than it would be if investo K averise. The SML would have a positive slope, but the slope would be steeper than it would be if investors were tisk averse. The SHL would be a horizontal line. The stst would have a nengative sloper Tool tip: Mouse over the points on the graph to see their coordinates. The SML. heips determine the risk-aversion level among investors. The steeper the slope of the SML, the the level of risk aversion. Which of the following statements best describes the shape of the SML If investors were not at all risk averse? The SML would have a positive slope, but the slope would be flatter than it would be if investors were risk averse. The SML would have a positive slope, but the slope would be steeper than it would be if investors were risk averse. The SHL would be a horizontal line. The SML. would have a negative slope

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