Suppose Risk free rate is 9%, the market rate of return is 14% and _i = 1.3 ;

(a) What is the required rate of return on stock I ?

(b) Suppose that the risk free rate (1) increases to 10% or (2) decreases to 8%. The slope of Security Market Line remains constant. How does this affect the market rate of return and the rate of return on the stock?

(c) Now assume that the risk free rate remains at 9% but the market rate increases to 16%. How would these changes affect the rate of return on stock I ?