Draw a diagram of the SML. Label the axes and the intercept. a. Assume the risk-free rate shifts...

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Draw a diagram of the SML. Label the axes and the intercept.  a. Assume the risk-free rate shifts upward. Draw the new SML.  b. Assume that the risk-free rate remains the same as before the change in (a), but that investors become more pessimistic about the stock market. Draw the new SML.

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SECURITIES MARKET LINE (SML)
Securities Market Line (SML)- Introduction
One can understand the relationship between an asset’s expected return and beta(β) with the help of Capital Asset Pricing model or CAPM. The CAPM is based on the assumption that securities need to provide a risk-adjusted market premium. 
The CAPM formula can be helpful in calculating the two-dimensional relationship that exists between expected return and beta. This can be further expressed graphically through Security Market Line or SML. One keynote aspect is that any security that is plotted above SML is considered as undervalued and security below the line is interpreted as overvalued (Miziołek, Feder-Sempach, and Zaremba, 2020).
The SML Graph
A standard SML graph has beta values on its x-axis and expected returns are plotted on its y-axis. The y-intercept represents the risk-free rate, or beta of zero. The objective of this graph is to help identify the slope of market risk premium.

Draw a diagram of the SML. Label the axes and the intercept. a. Assume the risk-free rate shifts upward. Draw the new SML. b. Assume that the risk-free rate remains the same as before the change in...

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