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Iditions change. Suppose rRF=3%,rM=12%, and buT=1.5. Under current conditions, what is ruT, the required rate of return on UT Stock? Round your answer to one
Iditions change. Suppose rRF=3%,rM=12%, and buT=1.5. Under current conditions, what is ruT, the required rate of return on UT Stock? Round your answer to one decimal place. % 1. Now suppose rRF increases to 4%. The market risk premium, RPM, (i.e., the slope of the SML) remains constant. How would this affect rm and rur? I. Both rMand rut will remain the same. II. Both rm and rUT will increase by 1 percentage point. III. TM will remain the same and rut will increase by 1 percentage point. IV. rM will increase by 1 percentage point and rut will remain the same. V. Both rM and rut will decrease by 1 percentage point. 2. Now suppose rRF decreases to 2%. The market risk premium, RPM. (i.e., the slope of the SML) remains constant. How would this affect rm and rut? I. rm will decrease by 1 percentage point and rur will remain the same. II. rM will remain the same and rut will decrease by 1 percentage point: IIx. Both FM and rut will increase by 1 percentage point. IV. Both fM and rut will remain the same. V. Both rim and rur will decrease by 1 percentage point, c. 1. Now assume res remains at 3\%, but ry increases to 14%. The market risk premium, RDM, (i.e. the siope of the sML) does. 1. Now assume rRf remains at 3% but rm increases to 14%. The market risk premium, RPM, (i.e., the slope of the SML) doe: not remain constant. How would these changes affect ruT? I. rut will remain the same. II. ut will increase by 3 percentage point. III. TUT will decrease by 3 percentage point. 2. Now assume rRF remains at 3% but rM falls to 11%. The market risk premium, RPM, (i.e., the slope of the SML) does not remain constant. How would these changes affect rut? I. rut will remain the same. II. Tut will decrease by 1.5 percentage point. III. FUT will increase by 1.5 percentage point
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