Suppose rRF = 9%, rM = 14%, and bi = 1.3. a. What is ri, the required

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Suppose rRF = 9%, rM = 14%, and bi = 1.3.

a. What is ri, the required rate of return on Stock i?

b. Now suppose rRF (1) increases to 10 percent or (2) decreases to 8 percent.

The slope of the SML remains constant. How would this affect rM and ri?

c. Now assume rRF remains at 9 percent but rM (1) increases to 16 percent or (2) falls to 13 percent. The slope of the SML does not remain constant. How would these changes affect ri?

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Financial management theory and practice

ISBN: 978-0324422696

12th Edition

Authors: Eugene F. Brigham and Michael C. Ehrhardt

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Question Posted: Mar 16, 2010 06:13 AM

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Suppose rRF = 9%, rM = 14%, and bi = 1.3. a. What is ri, the required

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a r i r RF r M r RF b i 9 14 913 155 b 1 r RF increases to 10 r M increases by 1 ...View the full answer

Financial management theory and practice

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