Suppose rRF = 4%, rM = 11%, and bi = 1.6. A. What is ri, the required rate of return on Stock i? Round your answer to one decimal place. % B. 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri? 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. rM will remain the same and ri will increase by 1 percentage point.
Suppose rRF = 4%, rM = 11%, and bi = 1.6.
A. What is ri, the required
%
B. 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
- 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.
- 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.
C. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri?
- Both rM and ri will remain the same.
- Both rM and ri will decrease by 1 percentage point.
- 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.
D. 1. Now assume that rRF remains at 4%, but rM increases 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 %.
2. Now assume that rRF remains at 4%, but rM falls to 10%. 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 %.
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