Suppose $r_{RF}=6\%,r_M=11\%,$ and $b_i=1\mathrm{.}4.$

a$.$ What is $r_1,$ the required rate of return on Stock i$?$ Round your answer to one decimal place. $\%$

b$.1.$ Now suppose $r_{RF}$ increases to $7\%.$ The slope of the SML remains constant. How would this affect $r_M$ and $r_1?$

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

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

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

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

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

$2.$ Now suppose $r_{RF}$ decreases to $5\%.$ The slope of the SML remains constant. How would this affect $r_M$ and $r_i?$

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

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

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

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

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

$-$Select$-$

c$.1.$ Now assume that $r_{RF}$ remains at $6\%,$ but $r_M$ increases to $12\%.$ The slope of the SML does not remain constant. How would these changes affect $r_i?$ Round your answer to one decim The new $r_i$ will be $\%.$

$2.$ Now assume that $r_{RF}$ remains at $6\%,$ but $r_M$ falls to $10\%.$ The slope of the SML does not remain constant. How would these changes affect $r_i?$ Round your answer to one decimal pl

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