Suppose rRF = 6%, rM = 12%, and bi = 1.3.

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

Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri?

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%.

Both rM and ri will remain the same.

-Select-IIIIIIIVVItem 2

Now suppose rRF decreases to 5%. 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%.

-Select-IIIIIIIVVItem 3

Now assume that rRF remains at 6% but rM increases to 13%. 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 6% but rM falls to 11%. 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 %