As an equity analyst you are concerned with what will happen to the required return to Universal Toddler Industries stock as market conditions change. Suppose rRF = 3%, rM = 9%, and bUTI = 1.2. Under current conditions, what is rUTI, the required rate of return on UTI Stock? Round your answer to two decimal places.

Now suppose rRF increases to 4%. The slope of the SML remains constant. How would this affect rM and rUTI?

I. Both rM and rUTI will increase by 1%.

II. rM will remain the same and rUTI will increase by 1%.

III. rM will increase by 1% and rUTI will remain the same.

IV. Both rM and rUTI will decrease by 1%. V. Both rM and rUTI will remain the same.

Suppose rRF decreases to 2%. The slope of the SML remains constant. How would this affect rM and rUTI?

I. rM will remain the same and rUTI will decrease by 1%.

II. Both rM and rUTI will increase by 1%.

III. Both rM and rUTI will remain the same.

IV. Both rM and rUTI will decrease by 1%.

V. rM will decrease by 1% and rUTI will remain the same.

Now assume rRF remains at 3% but rM increases to 11%. The slope of the SML does not remain constant. How would these changes affect rUTI?

I. rUTI will increase by 2.4%.

II. rUTI will remain the same.

III. rUTI will decrease by 2.4%.

Assume rRF remains at 3% but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect rUTI?

I. rUTI will decrease by 1.2%.

II. rUTI will remain the same.

III. rUTI will increase by 1.2%.