Question: Suppose rRF = 6 % , rM = 1 3 % , and bi = 1 . 7 . What is ri , the required

Suppose rRF

= 6 %,

= 13 %,

and bi

= 1.7 .

What is ri

,

the required rate of return on Stock i

?

Round your answer to one decimal place.

%

1 .

Now suppose rRF increases to

7 % .

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

5 % .

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

?

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.

Both rM and ri will remain the same.

Both rM and ri will decrease by

1

percentage point.

-

Select

-

1 .

Now assume that rRF remains at

6 %,

but rM increases to

14 % .

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

6 %,

but rM falls to

12 % .

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} = 6 %, r_{M} = 13 %,

and

b_{i} = 1.7

.

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

7 % .

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

5 % .

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

r_{M}

and

r_{i} ?

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.

III. Both

r_{M}

and

r_{i}

will increase by

1

percentage point.

.

Both

r_{M}

and

r_{i}

will remain the same.

.

Both

r_{M}

and

r_{i}

will decrease by

1

percentage point.

The new

r_{i}

will be

% .

The new

r_{i}

will be

% .

Suppose rRF =6%, rM =13%, and bi =1.7. What is ri,

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