As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose $rR{F}_{RF}=3\%,rM=13\%,$ and bUT $=1\mathrm{.}7.$

a$.$ Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place. $\%$

b$.1.$ Now suppose rRF increases to $4\%.$ The slope of the SML remains constant. How would this affect rM and rUT?

I. Both $r_M$ and rUT will remain the same.

II$.$ Both $r{M}^M$ and rUT will increase by $1$ percentage point.

III. $rM$ will remain the same and rUT will increase by $1$ percentage point.

IV$.r_M$ will increase by $1$ percentage point and rUT will remain the same.

V$.$ Both $r_M$ and rUT will decrease by $1$ percentage point.

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

I. $r{M}_M$ will decrease by $1$ percentage point and rUT will remain the same.

II$.$ rM will remain the same and rUT will decrease by $1$ percentage point.

III. Both rM and ret ${?}^2$ will increase by $1$ percentage point.

stions Navigation Menu th rM and rUT will remain the same.

v$.$ Both rM and rUT will decrease by $1$ percentage point.

c$.1.$ Now assume rRF remains at $3\%$ but $r$ increases to $15\%.$ The slope of the SML does not remain constant. How would these changes affect rUT?

I. rUT will remain the same.

II$.$ rUT will increase by $3\mathrm{.}4$ percentage point.

III. rUT will decrease by $3\mathrm{.}4$ percentage point.

$2.$ Now assume rRF remains at $3\%$ but rM falls ${?}^2$ for the $12\%.$ The slope of the SML does not remain constant. How would these changes affect rUT?

I. rUT will decrease by $1\mathrm{.}7$ percentage point.