8 Problem 8 12 (Required Rate of Return) eBook Problem Walk Through Suppose r RF 4 , r M 12 , and b i 1 7 What is r i , the required rate of return on Stock i Round your answer to one decimal place 1 Now suppose r RF increases 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 decrease by 1 percentage point Both r M and r i will remain the same Both r M and r i will increase by 1 percentage point r M will remain the same and r i will increase by 1 percentage point r M will increase by 1 percentage point and r i will remain the same Select IIIIIIIVVItem 2 2 Now suppose r RF decreases to 3 The slope of the SML remains constant How would this affect r M and r i r M will remain the same and r i will decrease by 1 percentage point Both r M and r i will increase by 1 percentage point Both r M and r i will remain the same Both r M and r i will decrease by 1 percentage point r M will decrease by 1 percentage point and r i will remain the same Select IIIIIIIVVItem 3 1 Now assume that r RF remains at 4 , but r M increases to 13 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be 2 Now assume that r RF remains at 4 , but r M falls to 11 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be Grade it Now Save Continue Continue without saving

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Question: 8. Problem 8.12 (Required Rate of Return) eBook Problem Walk-Through Suppose r RF = 4%, r M = 12%, and b i = 1.7. What

eBook Problem Walk-Through

Suppose rRF = 4%, rM = 12%, and bi = 1.7.

What is ri, the required rate of return on Stock i? Round your answer to one decimal place.
%
1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
1. Both rM and ri will decrease by 1 percentage point.
2. Both rM and ri will remain the same.
3. Both rM and ri will increase by 1 percentage point.
4. rM will remain the same and ri will increase by 1 percentage point.
5. rM will increase by 1 percentage point and ri will remain the same.
-Select-IIIIIIIVVItem 2

2. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri?

-Select-IIIIIIIVVItem 3

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