Suppose r RF 4 , r M 10 , and b i 1 2 What is r i , the required rate of return on Stock i Round your answer to one decimal place 1 Now suppose r RF increases to 5 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 percentage point r M will remain the same and r i will increase by 1 percentage point r M will increase by 1 percentage point and r i will remain the same Both r M and r i will decrease by 1 percentage point Both r M and r i will remain the same 2 Now suppose r RF decreases to 3 The slope of the SML remains constant How would this affect r M and r i r M will decrease by 1 percentage point and r i will remain the same r M will remain the same and r i will decrease by 1 percentage point Both r M and r i will increase by 1 percentage point Both r M and r i will remain the same Both r M and r i will decrease by 1 percentage point 1 Now assume that r RF remains at 4 , but r M increases to 11 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be 2 Now assume that r RF remains at 4 , but r M falls to 9 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be

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Question: Suppose r RF = 4%, r M = 10%, and b i = 1.2. What is r i , the required rate of return on

Suppose r_RF = 4%, r_M = 10%, and b_i = 1.2.

What is r_i, the required rate of return on Stock i? Round your answer to one decimal place.
%
1. Now suppose r_RF increases to 5%. 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 percentage point.
2. r_M will remain the same and r_i will increase by 1 percentage point.
3. r_M will increase by 1 percentage point and r_i will remain the same.
4. Both r_M and r_i will decrease by 1 percentage point.
5. Both r_M and r_i will remain the same
2. Now suppose r_RF decreases to 3%. The slope of the SML remains constant. How would this affect r_M and r_i?
1. r_M will decrease by 1 percentage point and r_i will remain the same.
2. r_M will remain the same and r_i will decrease by 1 percentage point.
3. Both r_M and r_i will increase by 1 percentage point.
4. Both r_M and r_i will remain the same.
5. Both r_M and r_i will decrease by 1 percentage point.
1. Now assume that r_RF remains at 4%, but r_M increases to 11%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to one decimal place.
The new r_i will be %.

2. Now assume that r_RF remains at 4%, but r_M falls to 9%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to one decimal place.

The new r_i will be %.

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