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Question: Assume the risk-free rate is 3.0% and the required return on the market portfolio is 12.0%.

(i) Suppose that the expected inflation rate decreases by 2.0% and the market risk premium increases to 11.0%. Write the new equation for the Security Market Line.

(ii) Show how the graph of the SML would be affected by these changes?

(iii) Now what is the required return on a stock with a beta of 2.0?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92776228

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