As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF= 3%, rM= 11%, and bUT= 1.4.

1. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place.
2. %
3. Now suppose rRFincreases to 4%. The slope of the SML remains constant. How would this affect rMand rUT?
4. I.Both rMand rUTwill remain the same.
5. II.Both rMand rUTwill increase by 1 percentage point.
6. III.rMwill remain the same and rUTwill increase by 1 percentage point.
7. IV.rMwill increase by 1 percentage point and rUTwill remain the same.
8. V.Both rMand rUTwill decrease by 1 percentage point.
9. -Select-
10. I
11. II
12. III
13. IV
14. V
15. Item 2
17. Now suppose rRFdecreases to 2%. The slope of the SML remains constant. How would this affect rMand rUT?
18. I.rMwill remain the same and rUTwill decrease by 1 percentage point.
19. II.Both rMand rUTwill increase by 1 percentage point.
20. III.Both rMand rUTwill remain the same.
21. IV.Both rMand rUTwill decrease by 1 percentage point.
22. V.rMwill decrease by 1 percentage point and rUTwill remain the same.
23. -Select-
24. I
25. II
26. III
27. IV
28. V
29. Item 3
31. Now assume rRFremains at 3% but rMincreases to 13%. The slope of the SML does not remain constant. How would these changes affect rUT?
32. I.rUTwill increase by 2.8 percentage point.
33. II.rUTwill remain the same.
34. III.rUTwill decrease by 2.8 percentage point.
35. -Select-
36. I
37. II
38. III
39. Item 4
41. Now assume rRFremains at 3% but rMfalls to 10%. The slope of the SML does not remain constant. How would these changes affect rUT?
42. I.rUTwill decrease by 1.4 percentage point.
43. II.rUTwill remain the same.
44. III.rUTwill increase by 1.4 percentage point.