Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose r RF = 5%, r M = 13%, and b i = 1.4. What is r i , the required rate of return on

Suppose rRF = 5%, rM = 13%, and bi = 1.4.

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

: %

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

-Select-IIIIIIIVVItem 3

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

%

1. Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and ri?

Both rM and ri will remain the same.

Both rM and ri will increase by 1 percentage point.

rM will remain the same and ri will increase by 1 percentage point.

rM will increase by 1 percentage point and ri will remain the same.

Both rM and ri will decrease by 1 percentage point.

-Select-IIIIIIIVVItem 2

rM will decrease by 1 percentage point and ri will remain the same.

rM will remain the same and ri will decrease by 1 percentage point.

Both rM and ri will increase by 1 percentage point.

Both rM and ri will remain the same.

Both rM and ri will decrease by 1 percentage point.

1. Now assume that rRF remains at 5%, but rM increases to 14%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.

The new ri will be %.

2. Now assume that rRF remains at 5%, but rM falls to 12%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.

The new ri will be %.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Personal Finance

Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes

8th Edition

007322359X, 9780073223599

More Books

Students also viewed these Finance questions

Question

It would have become a big deal.

Answered: 1 week ago