Question: Required rate of return Suppose rRF = 4%, rM = 13%, and bi = 1.3. What is ri, the required rate of return on Stock

Required rate of return

Suppose rRF = 4%, rM = 13%, and bi = 1.3.

What is ri, the required rate of return on Stock i? Round your answer to two decimal places. ........%

1. Now assume that rRF remains at 4% but rM increases to 14%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

The new ri will be %

2. Now assume that rRF remains at 4% but rM falls to 12%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

The new ri will be .......%

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