Click here to read the eBook The Relationship Between Risk and Rates of Return Problem Walk Through Problem 8 12 Required rate of return Suppose r RF 7 , r M 11 , and b i 1 8 What is r i , the required rate of return on Stock i Round your answer to two decimal places Now suppose r RF increases to 8 The slope of the SML remains constant How would this affect r M and r i Both r M and r i will increase by 1 r M will remain the same and r i will increase by 1 r M will increase by 1 and r i will remain the same Both r M and r i will decrease by 1 Both r M and r i will remain the same Select IIIIIIIVVItem 2 Now suppose r RF decreases to 6 The slope of the SML remains constant How would this affect r M and r i Both r M and r i will increase by 1 Both r M and r i will remain the same Both r M and r i will decrease by 1 r M will decrease by 1 and r i will remain the same r M will remain the same and r i will decrease by 1 Select IIIIIIIVVItem 3 Now assume that r RF remains at 7 but r M increases to 12 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be Now assume that r RF remains at 7 but r M falls to 10 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be

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Question: Click here to read the eBook: The Relationship Between Risk and Rates of Return Problem Walk-Through Problem 8-12 Required rate of return Suppose r RF

Click here to read the eBook: The Relationship Between Risk and Rates of Return Problem Walk-Through

Problem 8-12 Required rate of return

Suppose r_RF = 7%, r_M = 11%, and b_i = 1.8.

What is r_i, the required rate of return on Stock i? Round your answer to two decimal places. %
Now suppose r_RF increases to 8%. The slope of the SML remains constant. How would this affect r_M and r_i?
1. Both r_M and r_i will increase by 1%.
2. r_M will remain the same and r_i will increase by 1%.
3. r_M will increase by 1% and r_i will remain the same.
4. Both r_M and r_i will decrease by 1%.
5. Both r_M and r_i will remain the same.
-Select-IIIIIIIVVItem 2
Now suppose r_RF decreases to 6%. The slope of the SML remains constant. How would this affect r_M and r_i?
1. Both r_M and r_i will increase by 1%.
2. Both r_M and r_i will remain the same.
3. Both r_M and r_i will decrease by 1%.
4. r_M will decrease by 1% and r_i will remain the same.
5. r_M will remain the same and r_i will decrease by 1%.
-Select-IIIIIIIVVItem 3
Now assume that r_RF remains at 7% but r_M increases to 12%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.
The new r_i will be %
Now assume that r_RF remains at 7% but r_M falls to 10%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.
The new r_i will be %

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