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 = 6%, r_M = 11%, and b_UT = 2.1.

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

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2. 1. Now suppose r_RF increases to 7%. 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 increase by 1%. III. r_M will remain the same and r_UT will increase by 1%. IV. r_M will increase by 1% and r_UT will remain the same. V. Both r_M and r_UT will decrease by 1%.

      -Select-IIIIIIIVVItem 2

   2. Now suppose r_RF decreases to 5%. 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%. III. r_M will decrease by 1% and r_UT will remain the same. IV. r_M will remain the same and r_UT will decrease by 1%. V. Both r_M and r_UT will increase by 1%.

      -Select-IIIIIIIVVItem 3

3. 1. Now assume r_RF remains at 6% but r_M increases to 13%. The slope of the SML does not remain constant. How would these changes affect r_UT?

      I. r_UT will decrease by 4.2%. II. r_UT will remain the same. III. r_UT will increase by 4.2%.

      -Select-IIIIIIItem 4

   2. Now assume r_RF remains at 6% but r_M falls to 10%. The slope of the SML does not remain constant. How would these changes affect r_UT?

      I. r_UT will remain the same. II. r_UT will decrease by 2.1%. III. r_UT will increase by 2.1%.

   3. select option