8.12

Suppose TRF = 4%, r = 12%, and b; = 1.7. a. What is 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? I. Both rm and i will increase by 1 percentage point II. r will remain the same and will increase by 1 percentage point. III. rm will increase by 1 percentage point and will remain the same. IV. Both rm and i will decrease by 1 percentage point. V. Both rm and i will remain the same. -Select- 2. Now suppose TRF decreases to 3%. The slope of the SML remains constant. How would this affect rm and r? I. I will remain the same and will decrease by 1 percentage point. II. Both rm and i will increase by 1 percentage point. III. Both rm and i will remain the same. IV. Both rm and i will decrease by 1 percentage point. V. I will decrease by 1 percentage point and ri will remain the same. -Select- c. 1. Now assume that rrr remains at 4%, but rm increases to 13%. 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 rrr remains at 4%, but rm falls to 11%. The slope of the SML does not remain constant. How would these changes affect ? Round your answer to one decimal place. The new ri will be %