Suppose r RF = 4%, r M = 10%, and b i = 1 4. a. What
Question:
Suppose rRF = 4%, rM = 10%, and bi = 1 4.
a. What is ri, the required rate of return on Stock i?
b. Now suppose that rRF (1) increases to 5% or (2) decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri?
c. Now assume that rRF remains at 4%, but rM (1) increases to 12% or (2) falls to 9%. The slope of the SML does not remain constant. How would these changes affect ri?
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a r i r RF r M r RF b i 4 10 414 124 b 1 r RF increases to 5 r M increases by ...View the full answer
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Related Book For 
Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham
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