Suppose r RF 4 , r M 9 , and b i 2 2 Now suppose r RF decreases to 3 The slope of the SML remains constant How would this affect r M and r i Select IIIIIIIVVItem 3 What is r i , the required rate of return on Stock i Round your answer to two decimal places 1 Now suppose r RF increases to 5 The slope of the SML remains constant How would this affect r M and r i Both r M and r i will increase by 1 r M will remain the same and r i will increase by 1 r M will increase by 1 and r i will remain the same Both r M and r i will decrease by 1 Both r M and r i will remain the same Select IIIIIIIVVItem 2 r M will remain the same and r i will decrease by 1 Both r M and r i will increase by 1 Both r M and r i will remain the same Both r M and r i will decrease by 1 r M will decrease by 1 and r i will remain the same 1 Now assume that r RF remains at 4 , but r M increases to 10 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be 2 Now assume that r RF remains at 4 , but r M falls to 8 The slope of the SML does not remain constant How would these changes affect r i Round your answer to two decimal places The new r i will be

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 21, 2024

Suppose r_RF = 4%, r_M = 9%, and b_i = 2.

2. Now suppose r_RF decreases to 3%. The slope of the SML remains constant. How would this affect r_M and r_i?

-Select-IIIIIIIVVItem 3

What is r_i, the required rate of return on Stock i? Round your answer to two decimal places. %
1. Now suppose r_RF increases to 5%. The slope of the SML remains constant. How would this affect r_M and r_i?
1. Both r_M and r_i will increase by 1%.
2. r_M will remain the same and r_i will increase by 1%.
3. r_M will increase by 1% and r_i will remain the same.
4. Both r_M and r_i will decrease by 1%.
5. Both r_M and r_i will remain the same.
-Select-IIIIIIIVVItem 2
1. r_M will remain the same and r_i will decrease by 1%.
2. Both r_M and r_i will increase by 1%.
3. Both r_M and r_i will remain the same.
4. Both r_M and r_i will decrease by 1%.
5. r_M will decrease by 1% and r_i will remain the same.
1. Now assume that r_RF remains at 4%, but r_M increases to 10%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.
The new r_i will be %.
2. Now assume that r_RF remains at 4%, but r_M falls to 8%. The slope of the SML does not remain constant. How would these changes affect r_i? Round your answer to two decimal places.
The new r_i will be %.