Question: Suppose r RF = 6%, r M = 9%, and b i = 1.4. What is r i , the required rate of return on

Suppose rRF = 6%, rM = 9%, and bi = 1.4.

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

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  1. 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri?

  1. rM will remain the same and ri will increase by 1 percentage point.
  2. rM will increase by 1 percentage point and ri will remain the same.
  3. Both rM and ri will decrease by 1 percentage point.
  4. Both rM and ri will remain the same.
  5. Both rM and ri will increase by 1 percentage point.
  6. Both rM and ri will decrease by 1 percentage point.
  7. rM will decrease by 1 percentage point and ri will remain the same.
  8. rM will remain the same and ri will decrease by 1 percentage point.
  9. Both rM and ri will increase by 1 percentage point.
  10. Both rM and ri will remain the same.
  11. 1. Now assume that rRF remains at 6%, but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.

The new ri will be %.

2. Now assume that rRF remains at 6%, but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.

The new ri will be %.

You have been managing a $5 million portfolio that has a beta of 0.95 and a required rate of return of 9.175%. The current risk-free rate is 3%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 0.65, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.

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