HR Corporation has a beta of 2.0, while LR Corporation's beta is 0.5. The risk-free...
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HR Corporation has a beta of 2.0, while LR Corporation's beta is 0.5. The risk-free rate is 10 percent, and the required rate of return on an average stock is 15 percent. Now Rf falls by 3 percentage points, the required return on the market falls to 11 percent, but the betas of the two companies remain constant. What is the difference in the required returns on HR's and LR's stocks before and after the changes in Rf and Rm occur? Illustrate by drawing the Security Market Line (SML) before and after the changes.
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