As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change Suppose r RF 4 , r M 12 , and b UT 1 9 Under current conditions, what is r UT , the required rate of return on UT Stock Round your answer to one decimal place Now suppose r RF increases to 5 The slope of the SML remains constant How would this affect r M and r UT I r M will increase by 1 percentage point and r UT will remain the same II Both r M and r UT will decrease by 1 percentage point III Both r M and r UT will remain the same IV Both r M and r UT will increase by 1 percentage point V r M will remain the same and r UT will increase by 1 percentage point Now suppose r RF decreases to 3 The slope of the SML remains constant How would this affect r M and r UT I Both r M and r UT will remain the same II Both r M and r UT will decrease by 1 percentage point III r M will decrease by 1 percentage point and r UT will remain the same IV r M will remain the same and r UT will decrease by 1 percentage point V Both r M and r UT will increase by 1 percentage point Now assume r RF remains at 4 but r M increases to 14 The slope of the SML does not remain constant How would these changes affect r UT I r UT will decrease by 3 8 percentage point II r UT will remain the same III r UT will increase by 3 8 percentage point Select IIIIIIItem 4 Now assume 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 UT I r UT will decrease by 1 9 percentage point II r UT will remain the same III r UT will increase by 1 9 percentage point

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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 r

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose r_RF = 4%, r_M = 12%, and b_UT = 1.9.

Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to one decimal place
Now suppose r_RF increases to 5%. The slope of the SML remains constant. How would this affect r_M and r_UT?
I. r_M will increase by 1 percentage point and r_UT will remain the same. II. Both r_M and r_UT will decrease by 1 percentage point. III. Both r_M and r_UT will remain the same. IV. Both r_M and r_UT will increase by 1 percentage point. V. r_M will remain the same and r_UT will increase by 1 percentage point.
Now suppose r_RF decreases to 3%. The slope of the SML remains constant. How would this affect r_M and r_UT?

I. Both r_M and r_UT will remain the same. II. Both r_M and r_UT will decrease by 1 percentage point. III. r_M will decrease by 1 percentage point and r_UT will remain the same. IV. r_M will remain the same and r_UT will decrease by 1 percentage point. V. Both r_M and r_UT will increase by 1 percentage point.
Now assume r_RF remains at 4% but r_M increases to 14%. The slope of the SML does not remain constant. How would these changes affect r_UT?

I. r_UT will decrease by 3.8 percentage point. II. r_UT will remain the same. III. r_UT will increase by 3.8 percentage point.
-Select-IIIIIIItem 4
Now assume 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_UT?

I. r_UT will decrease by 1.9 percentage point. II. r_UT will remain the same. III. r_UT will increase by 1.9 percentage point.

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