Suppose rRF = 3%, rM = 11% and bi = 1.9

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

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

rM will remain the same and ri will increase by 1%.

rM will increase by 1% and ri will remain the same.

Both rM and ri will decrease by 1%.

Both rM and ri will remain the same.

Both rM and ri will increase by 1%.

2. Now suppose rRF decreases to 2%. The slope of the SML remains constant. How would this affect rM and ri?

rM will decrease by 1% and ri will remain the same.

rM will remain the same and ri will decrease by 1%.

Both rM and ri will increase by 1%.

Both rM and ri will remain the same.

Both rM and ri will decrease by 1%.

1.Now assume that rRF remains at 3%, 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 %.

2. Now assume that rRF remains at 3%, 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.

The new ri will be %.

Suppose rAF=3%,rM=11%, and bi=1.9. a. What is ni, the required rate of retum on Stock i? Round your answer to one decimal place. % b. 1. Now suppose ree increases to 4%. The slope of the SML remains constant. How would this affect rM and ri? 1. ry will increase by 1 percentage point and r; will remain the same. II. Both r and n will decrease by 1 percentage point. III. Both rm and ri will remain the same. IV. Both rm and fi will increase by 1 percentage point. V. rm will remain the same and n will increase by 1 percentage point. 2. Now suppose rRF decreases to 2%. The slope of the SML. remains constant. How would this affect rM and ri? 1. rM will remain the same and ni will decrease by 1 percentage point. II. Both rm and n will increase by 1 percentage point. III. Both ru and n will remain the same. IV. Both rM and ri will decrease by 1 percentage point. V. ry will decrease by 1 percentage point and n will remain the same. c. 1. Now assume that ray remains at 3%, but rm increases to 12%. The slope of the SML does not remain constant. How would these changes atfect ri? Ro your answer to one decimal place. The new ri will be %. 2. Now assume that ny remains at 3\%, but ry falls to 10%. The slope of the SML does not remain constant. How would these changes affect n? Round y antwer to one decimal place, The new ri will be