Question

5. 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: 20 0 16.0 12.0 Relun on HC's Stock 6.0 40 10 RISK (Beta)

Answer 1

As per rules I am answering the first 4 subparts of the question

1: 2%

(Risk free rate is that rate at which SML touches the Y axis)

2: 6%

(8%-2% = 6%)

3: 1

(Stock beta is that point at which SML intersects the X axis)

4: 8%

(The point at which the dotted line touche the Y axis)