Question: As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries's stock as market conditions change. Suppose

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries's stock as market conditions change. Suppose rRp

= 5 %,

= 12 %,

and buTt

= 1.4 .

Under current conditions, what is ruti, the required rate of return on UTI stock?

Now suppose IR

(1)

increases to

6 %

(2)

decreases to

4 % .

The slope of the SML remains constant. How would this affect rm and ruti?

Now assume fre remains at

5 %

but rm

(1)

increases to

14 %

(2)

falls to

11 % .

The slope of the SML does not remain constant. How would these changes

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