Suppose rRF = 9%, rM = 14%, and bi =

Suppose rRF = 9%, rM = 14%, and bi = 1.3.

a. What is ri, the required rate of return on Stock i?

b. Now suppose rRF (1) increases to 10 percent or (2) decreases to 8 percent.

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

c. Now assume rRF remains at 9 percent but rM (1) increases to 16 percent or (2) falls to 13 percent. The slope of the SML does not remain constant. How would these changes affect ri?

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