Question: Suppose r RF = 5%, r M = 11%, and b i = 2. What is r i , the required rate of return on

Suppose rRF = 5%, rM = 11%, and bi = 2.

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

b. 1. Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and ri?

-Select-IIIIIIIVVItem 2

  1. rM will remain the same and ri will increase by 1%.
  2. rM will increase by 1% and ri will remain the same.
  3. Both rM and ri will decrease by 1%.
  4. Both rM and ri will remain the same.
  5. Both rM and ri will increase by 1%.

c . Now suppose rRF decreases to 4%. The slope of the SML remains constant. How would this affect rM and ri?

  1. rM will decrease by 1% and ri will remain the same.
  2. rM will remain the same and ri will decrease by 1%.
  3. Both rM and ri will increase by 1%.
  4. Both rM and ri will remain the same.
  5. Both rM and ri will decrease by 1%.

  1. 1. Now assume that rRF remains at 5%, but rM increases 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 %.
  3. Now assume that rRF remains at 5%, but rM falls to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.
  4. The new ri will be %.

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