Suppose $r_{RF}=3\%,r_M=11\%,$ and $b_i=1\mathrm{.}8.$

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

$\%$

b$.1.$ Now suppose $r_{RF}$ increases to $4\%.$ The slope of the SML remains constant. How would this affect $r_M$ and $r_i?$

I. Both $r_M$ and $r_i$ will increase by $1$ percentage point.

II$.r_M$ will remain the same and $r_i$ will increase by $1$ percentage point.

III. $r_M$ will increase by $1$ percentage point and $r_i$ will remain the same.

IV$.$ Both $r_M$ and $r_i$ will decrease by $1$ percentage point.

V$.$ Both $r_M$ and $r_i$ will remain the same.

Now suppose $r_{RF}$ decreases to $2\%.$ The slope of the SML remains constant. How would this affect $r_M$ and $r_i?$

I. $r_M$ will remain the same and $r_i$ will decrease by $1$ percentage point.

II$.$ Both $r_M$ and $r_i$ will increase by $1$ percentage point.

III. Both $r_M$ and $r_i$ will remain the same.

IV$.$ Both $r_M$ and $r_i$ will decrease by $1$ percentage point.

V$.r_M$ will decrease by $1$ percentage point and $r_i$ will remain the same.

decimal place.

The new $r_i$ will be $|,\%.$

decimal place.

The new $r_i$ will be

$\%.$