Question: Suppose r RF = 9%, r M = 14%, and X = 1.3. a. What is r X , the required rate of return

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

a. What is rX, the required rate of return on Stock X?

b. Now suppose rRF 

(1) Increases to 10 percent 

(2) Decreases to 8 percent. The slope of the SML remains constant. How would each change affect rM and rX?

c. Assume rRF remains at 9 percent, but rM 

(1) Increases to 16 percent 

(2) Decreases to 13 percent. The slope of the SML does not remain constant. How would these changes affect rX?

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