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As an equity analyst you are concerned with what will happen to the required return to Universal Toddler s stock as market conditions change. Suppose

As an equity analyst you are concerned with what will happen to the required return to Universal Toddlers stock as market conditions change. Suppose rRF 5%, rM 12%, and bUT 14. a. Under current conditions, what is rUT, the required rate of return on UT stock? b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUT? c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUT?

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