Suppose rRF = 3%, rM = 11%, and bi = 2.1.

1. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. %

2. 1. Now suppose rRF increases to 4%. The slope of the SML remains constant. How would this affect rM and ri?

   1. rM will remain the same and ri will increase by 1%.
   2. rM will increase by 1% and ri will remain the same.
   3. Both rM and ri will decrease by 1%.
   4. Both rM and ri will remain the same.
   5. Both rM and ri will increase by 1%.
   -Select-IIIIIIIVVItem 2

2. Now suppose rRF decreases to 2%. The slope of the SML remains constant. How would this affect rM and ri?

1. rM will decrease by 1% and ri will remain the same.
2. rM will remain the same and ri will decrease by 1%.
3. Both rM and ri will increase by 1%.
4. Both rM and ri will remain the same.
5. Both rM and ri will decrease by 1%.
-Select-IIIIIIIVVItem 3

3. 1. Now assume that rRF remains at 3%, but rM increases to 12%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

   The new ri will be %.

   2. Now assume that rRF remains at 3%, but rM falls to 10%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to two decimal places.

   The new ri will be