There is two parts too chapter 7 First partis here Second part will be in next order Part one haves 76 questions in total Part one 76 due feb 14th 2 pm EST TIME Chapter 07: Assignment - Asset Pricing Models 1. Problem 7-01 BE Problem 7-01 Assume that you expect the economy's rate of inflation to be 2 percent, giving an RFR of 6 percent and a market return (RM) of 13 percent. a. Choose the correct SML graph under these assumptions. The correct graph is-Select- ✓ A. B. eBook B. C. -Select- graph A graph B Rate of Return graph C graph D 0.22 0.21 0.18 0.16- 0.14 0.12 0.1 0.08- RERa 0.06 0.04 0.02 Chapter 07: Assignment - Asset Pricing Models 0.04 + 0.02 Rate of Return RF Ra 0.22 0.2 0.18- 0.16- 0.14 0.12 0.11 0.08 0.06 0.04- 0.02 Security market Line Data of Daturn t SMLa Security market Line Systematic Risk (Beta) Security market Line SMLa Security market Line Systematic Risk (Beta) Systematic Risk (Beta)) Chapter 07: Assignment - Asset Pricing Models D. C. D. A Rate of Return RF Ra Chapter 07: Assignment - Asset Pricing Models Rate of Returni RF Ra 0.22 0.2 0.18 0.16 0.14 0.12 0.14 0.08 0.06 0.04 0.22+ 0.2 0.18+ 0.16+ 0.14 0.12 0.1- 0.08 0.06+ 0.04 0.02 0.02 I I Security market Line Security market Line Security market Line SMLa 1 SMLa Security market Line Systematic Risk (Beta) Systematic Risk (Beta) Systematic Risk (Beta) b. Subsequently, you expect the rate of inflation to increase from 2 percent to 4 percent. What effect would this have on the RFR and the RM? A change in risk-free rate, with other things being equal, would result in a new SMLь, which would intercept with the -Select- ✓axis at the new risk-free rate and -Select- parallel to the original SMLa. -Select- vertical horizontal Choose the correct SML graph. The correct graph is-Select- ✓ Systematic Risk (Beta) ✓ be Chapter 07: Assignment - Asset Pricing Models 0.12 -0.1 0.08 0.06+ 0.04 + 0.02 A. RFRa Systematic Risk (Beta) b. Subsequently, you expect the rate of inflation to increase from 2 percent to 4 percent. What effect would this have on the RFR and the RM? A change in risk-free rate, with other things being equal, would result in a new SML, which would intercept with the -Select- ✓axis at the new risk-free rate and -Select- parallel to the original SMLa. -Select- would would not Choose the correct SML graph. The correct graph is -Select- Rate of Return turn Chapter 07: Assignment - Asset Pricing Models A. The correct graph is -Select- ✓ -Select graph A graph B Rate of Return graph C graph D Systematic Risk (Beta) b. Subsequently, you expect the rate of inflation to increase from 2 percent to 4 percent. What effect would this have on the RFR and the RM? A change in risk-free rate, with other things being equal, would result in a new SML, which would intercept with the -Select- ✓axis at the new risk-free rate and -Select- ✓ be parallel to the original SMLa. Choose the correct SML graph. RFRb RFRA 0.22 0.21 0.18 0.16 0.14 0.12 0.14 0.08 0.06+ I 0.04 Security market Line 0.02 Security market Line 1 SMLb SMLa ✓ be Systematic Risk (Beta)) X Chapter 07: Assignment - Asset Pricing Models B. Rate of Return I C. RFRb RFR₂ 0.22 0.2 0.18 0.16 0.14 0.121 0.1 0.08 0.06 0.04 0.02 Chapter 07: Assignment - Asset Pricing Models Rate of Return I 0.221 -0.2 0.18+ 0.16 RFRb=RFRa 0.14 0.12+ 0.1- -0.08 Security market Line 0.06+ 0.04+ 0.02- SMLb SMLa Security market Line SMLb SMLa Systematic Risk (Beta)) Systematic Risk (Beta) Systematic Risk (Beta) Systematic Risk (Beta)