Question

eBook Problem Walk-Through Suppose rRF = 4%, rM = 10%, and bi = 1.4. 2. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri? -Select-IIIIIIIVVItem 3 What is ri, the required rate of return on Stock i? Round your answer to one decimal place.   % 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 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. Both rM and ri will decrease by 1 percentage point. Both rM and ri will remain the same. -Select-IIIIIIIVVItem 2 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. Both rM and ri will remain the same. 1. Now assume that rRF remains at 4%, but rM increases to 11%. 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 9%. 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   %.

Answer 1

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