Question: Suppose rRF = 5 % , rM = 1 0 % , and bi = 1 . 2 . What is ri , the required

Suppose rRF

= 5 %,

= 10 %,

and bi

= 1.2 .

What is ri

,

the required rate of return on Stock i

?

Round your answer to one decimal place.

%

1 .

Now suppose rRF increases to

6 % .

The slope of the SML remains constant. How would this affect rM and ri

?

.

Both rM and ri will increase by

1

percentage point.

.

rM will remain the same and ri will increase by

1

percentage point.

.

rM will increase by

1

percentage point and ri will remain the same.

.

Both rM and ri will decrease by

1

percentage point.

.

Both rM and ri will remain the same.

2 .

Now suppose rRF decreases to

4 % .

The slope of the SML remains constant. How would this affect rM and ri

?

Both rM and ri will increase by

1

percentage point.

Both rM and ri will remain the same.

Both rM and ri will decrease by

1

percentage point.

rM will decrease by

1

percentage point and ri will remain the same.

rM will remain the same and ri will decrease by

1

percentage point.

-

Select

-

1 .

Now assume that rRF remains at

5 %,

but rM increases to

11 % .

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

5 %,

but rM falls to

9 % .

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

% .

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