Suppose r RF = 9%, r M = 14%, and X = 1.3. a. What is
Question:
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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a r X r RF r M r RF X 9 14 913 155 RP M r M r RF 14 9 5 b r RF increases to 10 RP M does not c...View the full answer
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