Question
Suppose rRF = 6%, rM = 12%, and bi = 1.9. A. What is ri, the required rate of return on Stock i? Round your
Suppose rRF = 6%, rM = 12%, and bi = 1.9.
A. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. %
B. Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rMand ri?
rM will remain the same and ri will increase by 1%.
rM will increase by 1% and ri will remain the same.
Both rM and ri will decrease by 1%.
Both rM and ri will remain the same.
Both rM and ri will increase by 1%.
C. Now assume that rRF remains at 6% but rM increases to 13%. 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 %
D. Now assume that rRF remains at 6% but rM falls to 11%. 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 %
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