Suppose $r_{RF}=6\%,r_M=10\%,$ and $b_1=1\mathrm{.}6.$

a$.$ What is $n,$ 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 $n?$

I. Both $r_M$ and $n$ will decrease by $1$ percentage point.

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

III. Both $r_M$ and $n$ will increase by $1$ percentage point.

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

V$.r_M$ will increase by $1$ percentage point and $r_1$ will remain the same.

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

I. Both $r_m$ and $n$ will increase by $1$ percentage point.

II$.$ Both $r_M$ and $n_i$ will remain the same.

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

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

V$.r_M$ will remain the same and $n$ will decrease by $1$ percentage point. one decimal place.

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