Question: Suppose rRF = 5%, rM = 9%, and bi = 1.5. What is ri, the required rate of return on Stock i? Round your answer

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

What is ri, the required rate of return on Stock i? Round your answer to two decimal places. % 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 remain the same. Both rM and ri will increase by 1%. 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%. 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%. Both rM and ri will remain the same. Both rM and ri will decrease by 1%. rM will decrease by 1% and ri will remain the same. rM will remain the same and ri will decrease by 1%. 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 two decimal places. 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 two decimal places. The new ri will be %.

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