Question
s an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF
s an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 5%, rM = 13%, and bUT = 1.8.
Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to two decimal places.
%
Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT?
I. rM will increase by 1% and rUT will remain the same. II. Both rM and rUT will decrease by 1%. III. Both rM and rUT will remain the same. IV. Both rM and rUT will increase by 1%. V. rM will remain the same and rUT will increase by 1%.
-Select-IIIIIIIVVItem 2
Now suppose rRF decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUT?
I. Both rM and rUT will decrease by 1%. II. rM will decrease by 1% and rUT will remain the same. III. rM will remain the same and rUT will decrease by 1%. IV. Both rM and rUT will increase by 1%. V. Both rM and rUT will remain the same.
-Select-IIIIIIIVVItem 3
Now assume rRF remains at 5% but rM increases to 15%. The slope of the SML does not remain constant. How would these changes affect rUT?
I. rUT will decrease by 3.6%. II. rUT will remain the same. III. rUT will increase by 3.6%.
-Select-IIIIIIItem 4
Now assume rRF remains at 5% but rM falls to 12%. The slope of the SML does not remain constant. How would these changes affect rUT?
I. rUT will decrease by 1.8%. II. rUT will remain the same. III. rUT will increase by 1.8%.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started