Suppose rRF = 4%, rM = 9%, and bi = 1.7.

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

Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri?

I.Both rM and ri will remain the same.

II.Both rM and ri will increase by 1%.

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

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

V.Both rM and ri will decrease by 1%.

Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri?

I.Both rM and ri will increase by 1%.

II.Both rM and ri will remain the same.

III.Both rM and ri will decrease by 1%.

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

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

Now assume that rRF remains at 4% but rM increases 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______%

Now assume that rRF remains at 4% but rM falls to 8%. 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______%