Question: 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

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 = 13%, and bUT = 1.9.

a. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to two decimal places.

b. Now suppose rRF (1) increases to 4% or (2) decreases to 2%. The slope of the SML remains constant. How would this affect rM and rUT?

c. Now assume rRF remains at 3% but rM (1) increases to 15% or (2) falls to 12%. The slope of the SML does not remain constant. How would these changes affect rUT?

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