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 10 , and b UT 1 5 Under current conditions, what is r UT , the required rate of return on UT Stock Round your answer to two decimal places Now suppose r RF increases to 7 The slope of the SML remains constant How would this affect r M and r UT I r M will increase by 1 and r UT will remain the same II Both r M and r UT will decrease by 1 III Both r M and r UT will remain the same IV Both r M and r UT will increase by 1 V r M will remain the same and r UT will increase by 1 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 increase by 1 II Both r M and r UT will remain the same III Both r M and r UT will decrease by 1 IV r M will decrease by 1 and r UT will remain the same V r M will remain the same and r UT will decrease by 1 Now assume r RF remains at 6 but r M increases to 12 The slope of the SML does not remain constant How would these changes affect r UT I r UT will decrease by 3 II r UT will remain the same III r UT will increase by 3 Now assume r RF remains at 6 but r M falls to 9 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 1 5 III r UT will increase by 1 5

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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 = 6%, r_M = 10%, and b_UT = 1.5.

Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to two decimal places.
%
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. r_M will increase by 1% and r_UT will remain the same. II. Both r_M and r_UT will decrease by 1%. III. Both r_M and r_UT will remain the same. IV. Both r_M and r_UT will increase by 1%. V. r_M will remain the same and r_UT will increase by 1%.
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 increase by 1%. II. Both r_M and r_UT will remain the same. III. Both r_M and r_UT will decrease by 1%. IV. r_M will decrease by 1% and r_UT will remain the same. V. r_M will remain the same and r_UT will decrease by 1%.
1. Now assume r_RF remains at 6% but r_M increases to 12%. The slope of the SML does not remain constant. How would these changes affect r_UT?
  I. r_UT will decrease by 3%. II. r_UT will remain the same. III. r_UT will increase by 3%.
2. Now assume r_RF remains at 6% but r_M falls to 9%. 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 1.5%. III. r_UT will increase by 1.5%.

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