Question: Suppose r RF = 6%, r M = 10%, and b i = 1.5. What is r i , the required rate of return on

Suppose r_RF = 6%, r_M = 10%, 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 7%. The slope of the SML remains constant. How would this affect r_M and r_i?

-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 increase by 1 percentage point.

-r_M will remain the same and r_i will increase by 1 percentage point

Answer____________________________________

2. Now suppose r_RF decreases 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 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.

-Both r_M and r_i will remain the same.

Answer___________________

1. Now assume that r_RF remains at 6%, 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 6%, 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 _______ %.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

The actor Wesley Snipes was indicted in 2006 for not filing tax returns for the years 1999 through 2004 and filing refund claims for approximately $12 million for 1996 and 1997, claiming that only...

Required rate of return: As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industriess stock as market conditions change. Suppose r RF= 8%, r M=...

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler s stock as market conditions change. Suppose r RF = 5 % , r M = 1 2 % , and b UT = 1 . 4 ....

4. Suppose r RF = 9%, r M = 14%, and b i = 1.3. a. What is r i , the required rate of return on Stock i? b. Graph the SML. c. Now suppose r RF increases to 10% while the slope of the SML remains...

Suppose r RF = 6%, r M = 11%, and r A = 12%. Calculate Stock A's beta. Round your answer to one decimal place. If Stock A's beta were 1.9, then what would be A's new required rate of return? R...

Suppose r RF = 6%, r M = 11%, and r A = 12%. A. Calculate Stock A's beta. Round your answer to one decimal place. B. If Stock A's beta were 1.9, then what would be A's new required rate of ret...

Suppose r RF = 8%, r M = 12%, and b i = 1.8. a. What is r i , the required rate of return on Stock i? Round your answer to two decimal places. %

Suppose n AF = 6 \ % ; r _ { M } = 1 0 % and b _ { i } = 1 . 7 a What is n , the required rate of return on Stock i ? Round your answer to one decimal place . % b . 1 . Now suppose increases to 7 % ....

Suppose r RF = 5.5%, r M = 11.5%, and b K = 0.7. What is r K , the required rate of return on Stock K? a. 4.20% b. 17.70% c. 13.55% d. 9.70% e. 8.05%

Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 35% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 20.0% standard...

Suppose r RF = 4.5%, r M = 10.1%, and b I = 1.3. What is r I , the required rate of return on Stock I? a. 7.28% b. 13.13% c. 15.90% d. 11.78% e. 17.63%

One painless way to save is to enroll in your company's 401(k) plan if one is offered. The money is automatically deducted from your paycheck. There's a good chance you won't even miss it! Also, you...

You are a financial advisor for a client who is 30 years old and has just inherited $100,000 from a deceased family member. The client has no immediate need for the funds and is willing to take a...

Assume a regulatory agency is given authority over prices and entry conditions for a given industry. Also assume the agency decides to allow new entry, as the CAB did before deregulation, only when...

last two options for the multiple choice are : performance management development A construction equipment manufacturer, Roswell Corporation, is focusing on becoming a leader in sustainability in...

C Does self-policing work on the Internet? What circumstances might inhibit a groups ability to selfpolice?

A Do you participate in Internet forums? Do you prefer moderated or open forums? What makes you prefer one over the other?

B Which is more important, a free-speech open forum or a managed, productive conflict? Do you think its necessary to trade off one for the other?