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REQUIRED RATE OF RETURN Suppose r RF = 9%, r M = 14% and b i = 13. a. What is r i , the required rate of return on Stock i? b. Now suppose that r RF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect r M , and r i ? c. Now assume that r RF remains at 9% but r M (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect r i ?

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 8, Problem 12P
Textbook Problem

REQUIRED RATE OF RETURN Suppose rRF = 9%, rM = 14% and bi = 13.

  1. a. What is ri, the required rate of return on Stock i?
  2. b. Now suppose that rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM, and ri?
  3. c. Now assume that rRF remains at 9% but rM (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri?

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Chapter 8 Solutions

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