Question

In: Finance

Suppose rRF = 6%, rM = 11%, and bi = 1.5. 2. Now suppose rRF decreases...

Suppose rRF = 6%, rM = 11%, and bi = 1.5.

2. Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri?



-Select-IIIIIIIVVItem 3

  1. What is ri, the required rate of return on Stock i? Round your answer to two decimal places.
    %

  2. 1. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri?

    1. Both rM and ri will increase by 1%.
    2. rM will remain the same and ri will increase by 1%.
    3. rM will increase by 1% and ri will remain the same.
    4. Both rM and ri will decrease by 1%.
    5. Both rM and ri will remain the same.


    -Select-IIIIIIIVVItem 2  
    1. rM will decrease by 1% and ri will remain the same.
    2. rM will remain the same and ri will decrease by 1%.
    3. Both rM and ri will increase by 1%.
    4. Both rM and ri will remain the same.
    5. Both rM and ri will decrease by 1%.
  3. 1. Now assume that rRF remains at 6%, but rM increases to 12%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

    The new ri will be  %.

    2. Now assume that rRF remains at 6%, but rM falls to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

    The new ri will be  %.

Solutions

Expert Solution

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