Suppose r RF 4 , r M 13 , and b i 1 5 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 Both r M and r i will remain the same Both r M and r i will decrease by 1 percentage point 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 1 Now assume that r RF remains at 4 , but r M increases to 14 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 12 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 = 13%, and b i = 1.5. What is r i , the required rate of return on

Suppose r_RF = 4%, r_M = 13%, and b_i = 1.5.

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.
Both r_M and r_i will remain the same.
Both r_M and r_i will decrease by 1 percentage point.
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.
1. Now assume that r_RF remains at 4%, but r_M increases to 14%. 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 12%. 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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