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Suppose rRF 9 rM 14 and X

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

a. What is rX, the required rate of return on Stock X?

b. Now suppose rRF

(1) Increases to 10 percent

(2) Decreases to 8 percent. The slope of the SML remains constant. How would each change affect rM and rX?

c. Assume rRF remains at 9 percent, but rM

(1) Increases to 16 percent

(2) Decreases to 13 percent. The slope of the SML does not remain constant. How would these changes affect rX?

a. What is rX, the required rate of return on Stock X?

b. Now suppose rRF

(1) Increases to 10 percent

(2) Decreases to 8 percent. The slope of the SML remains constant. How would each change affect rM and rX?

c. Assume rRF remains at 9 percent, but rM

(1) Increases to 16 percent

(2) Decreases to 13 percent. The slope of the SML does not remain constant. How would these changes affect rX?

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