Question: Suppose rRF = 5 % , rM = 9 % , and bi = 1 . 5 . What is ri , the required rate

Suppose rRF

= 5 %,

= 9 %,

and bi

= 1.5 .

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

?

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.

Both rM and ri will increase by

1

percentage point.

-

Select

-

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 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.

Both rM and ri will increase by

1

percentage point.

-

Select

-

1 .

Now assume that rRF remains at

5 %,

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

5 %,

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

% .

Suppose

r_{R F} = 5 %, r_{M} = 9 %,

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_{R F}

increases to

6 % .

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

r_{M}

and

r_{i} ?

r_{M}

will remain the same and

r_{i}

will increase by

1

percentage point.

. r_{M}

will increase by

1

percentage point and

r_{i}

will remain the same.

III. 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.

Now suppose

r_{R F}

decreases to

4 % .

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

r_{M}

and

r_{i} ?

I. Both

r_{M}

and

r_{i}

will remain the same.

.

Both

r_{M}

and

r_{i}

will decrease by

1

percentage point.

III.

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.

The new

r_{i}

will be

% .

The new

r_{i}

will be

% .

Suppose rRF =5%, rM =9%, and bi =1.5. What is ri,

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