Required Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change Suppose r RF 5 , r M 10 , and b UT 1 9 Under current conditions, what is r UT , the required rate of return on UT Stock Round your answer to one decimal place Now suppose r RF increases to 6 The slope of the SML remains constant How would this affect r M and r UT I Both r M and r UT will remain the same II Both r M and r UT will increase by 1 percentage point III r M will remain the same and r UT will increase by 1 percentage point IV r M will increase by 1 percentage point and r UT will remain the same V Both r M and r UT will decrease by 1 percentage point Select I, II, III, IV, V Now suppose r RF decreases to 4 The slope of the SML remains constant How would this affect r M and r UT I Both r M and r UT will remain the same II Both r M and r UT will decrease by 1 percentage point III r M will decrease by 1 percentage point and r UT will remain the same IV r M will remain the same and r UT will decrease by 1 percentage point V Both r M and r UT will increase by 1 percentage point Select I, II, III, IV, V Now assume r RF remains at 5 but r M increases to 12 The slope of the SML does not remain constant How would these changes affect r UT I r UT will increase by 3 8 percentage point II r UT will remain the same III r UT will decrease by 3 8 percentage point Select I, II, III Now assume r RF remains at 5 but r M falls to 9 The slope of the SML does not remain constant How would these changes affect r UT I r UT will increase by 1 9 percentage point II r UT will remain the same III r UT will decrease by 1 9 percentage point Select I, II, III

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Required Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market

Required Rate of Return

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose r_RF = 5%, r_M = 10%, and b_UT = 1.9.

Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to one decimal place.
%
1. Now suppose r_RF increases to 6%. The slope of the SML remains constant. How would this affect r_M and r_UT?
  I. Both r_M and r_UT will remain the same. II. Both r_M and r_UT will increase by 1 percentage point. III. r_M will remain the same and r_UT will increase by 1 percentage point. IV. r_M will increase by 1 percentage point and r_UT will remain the same. V. Both r_M and r_UT will decrease by 1 percentage point.
  
  -Select-I, II, III, IV, V
2. Now suppose r_RF decreases to 4%. The slope of the SML remains constant. How would this affect r_M and r_UT?
  
  I. Both r_M and r_UT will remain the same. II. Both r_M and r_UT will decrease by 1 percentage point. III. r_M will decrease by 1 percentage point and r_UT will remain the same. IV. r_M will remain the same and r_UT will decrease by 1 percentage point. V. Both r_M and r_UT will increase by 1 percentage point.
  
  -Select-I, II, III, IV, V
1. Now assume r_RF remains at 5% but r_M increases to 12%. The slope of the SML does not remain constant. How would these changes affect r_UT?
  I. r_UT will increase by 3.8 percentage point. II. r_UT will remain the same. III. r_UT will decrease by 3.8 percentage point.
  
  -Select-I, II, III
2. Now assume r_RF remains at 5% but r_M falls to 9%. The slope of the SML does not remain constant. How would these changes affect r_UT?
  
  I. r_UT will increase by 1.9 percentage point. II. r_UT will remain the same. III. r_UT will decrease by 1.9 percentage point.
  
  -Select-I, II, III