1) Suppose r RF 6 , r M 9 , and b i 1 5 What is r i , the required rate of return on Stock i Round your answer to two decimal places 1 Now suppose r RF increases to 7 The slope of the SML remains constant How would this affect r M and r i Both r M and r i will decrease by 1 Both r M and r i will remain the same Both r M and r i will increase by 1 r M will remain the same and r i will increase by 1 r M will increase by 1 and r i will remain the same 2 Now suppose r RF decreases to 5 The slope of the SML remains constant How would this affect r M and r i Both r M and r i will increase by 1 Both r M and r i will remain the same Both r M and r i will decrease by 1 r M will decrease by 1 and r i will remain the same r M will remain the same and r i will decrease by 1 c 1 Now assume that r RF remains at 6 , but r M increases to 10 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be 2 Now assume that r RF remains at 6 , but r M falls to 8 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be

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Question: 1) Suppose r RF = 6%, r M = 9%, and b i = 1.5. What is r i , the required rate of return

1) Suppose r_RF = 6%, r_M = 9%, and b_i = 1.5.

What is r_i, the required rate of return on Stock i? Round your answer to two decimal places. %
1. Now suppose r_RF increases to 7%. The slope of the SML remains constant. How would this affect r_M and r_i?
1. Both r_M and r_i will decrease by 1%.
2. Both r_M and r_i will remain the same.
3. Both r_M and r_i will increase by 1%.
4. r_M will remain the same and r_i will increase by 1%.
5. r_M will increase by 1% and r_i will remain the same.

2. Now suppose r_RF decreases to 5%. The slope of the SML remains constant. How would this affect r_M and r_i?

Both r_M and r_i will increase by 1%.
Both r_M and r_i will remain the same.
Both r_M and r_i will decrease by 1%.
r_M will decrease by 1% and r_i will remain the same.
r_M will remain the same and r_i will decrease by 1%

1. Now assume that r_RF remains at 6%, but r_M increases to 10%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.

The new r_i will be %.

2. Now assume that r_RF remains at 6%, but r_M falls to 8%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.

The new r_i will be %.

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