eBook Problem Walk Through Suppose r RF 5 , r M 12 , and b i 1 7 a What is r i , the required rate of return on Stock i Round your answer to one decimal place b Now suppose r RF increases to 6 The slope of the SML remains constant How would this affect r M and r i r M will increase by 1 percentage point and r i will remain the same Both r M and r i will decrease by 1 percentage point Both r M and r i will remain the same Both r M and r i will increase by 1 percentage point r M will remain the same and r i will increase by 1 percentage point c Now suppose r RF decreases to 4 The slope of SML remains constant How would this affect r M and r i r M will decrease by 1 percentage point and r i will remain the same r M will remain the same and r i will decrease by 1 percentage point Both r M and r i will increase by 1 percentage point Both r M and r i will remain the same Both r M and r i will decrease by 1 percentage point d Now assume that r RF remains at 5 , but r M increases to 13 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be e 2 Now assume that r RF remains at 5 , but r M falls to 11 The slope of the SML does not remain constant How would these changes affect r i Round your answer to one decimal place The new r i will be

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eBook Problem Walk-Through Suppose r RF = 5%, r M = 12%, and b i = 1.7. a. What is r i , the required

eBook Problem Walk-Through

Suppose r_RF = 5%, r_M = 12%, and b_i = 1.7.

a. What is r_i, the required rate of return on Stock i? Round your answer to one decimal place.

b. Now suppose r_RF increases to 6%. The slope of the SML remains constant. How would this affect r_M and r_i?

r_M will increase by 1 percentage point and r_i will remain the same.
Both r_M and r_i will decrease by 1 percentage point.
Both r_M and r_i will remain the same.
Both r_M and r_i will increase by 1 percentage point.
r_M will remain the same and r_i will increase by 1 percentage point.

c. Now suppose r_RF decreases to 4%. The slope of SML remains constant. How would this affect r_M and r_i?

r_M will decrease by 1 percentage point and r_i will remain the same.
r_M will remain the same and r_i will decrease by 1 percentage point.
Both r_M and r_i will increase by 1 percentage point.
Both r_M and r_i will remain the same.
Both r_M and r_i will decrease by 1 percentage point.

d. Now assume that r_RF remains at 5%, but r_M increases to 13%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to one decimal place.

The new r_i will be_________ %.

e. 2. Now assume that r_RF remains at 5%, but r_M falls to 11%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to one decimal place.

The new r_i will be_______ %.