Suppose you are the money manager of a $3.68 million investment fund. The fund consists of 4 stocks with the following investments and betas:

Stock	Investment	Beta
A	$ 200,000	1.50
B	380,000	- 0.50
C	1,100,000	1.25
D	2,000,000	0.75

If the market's required rate of return is 9% and the risk-free rate is 7%, what is the fund's required rate of return? Round your answer to two decimal places. %

Suppose r_RF = 5%, r_M = 11%, and b_i = 1.3.

1. What is r_i, the required rate of return on Stock i? Round your answer to two decimal places. %
2. Now suppose r_RF increases to 6%. The slope of the SML remains constant. How would this affect r_M and r_i?
   1. Both r_M and r_i will remain the same.
   2. Both r_M and r_i will increase by 1%.
   3. r_M will remain the same and r_i will increase by 1%.
   4. r_M will increase by 1% and r_i will remain the same.
   5. Both r_M and r_i will decrease by 1%.

-Select-IIIIIIIVV

3. Now suppose r_RF decreases to 4%. 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. Both r_M and r_i will remain the same.
   3. Both r_M and r_i will decrease by 1%.
   4. r_M will decrease by 1% and r_i will remain the same.
   5. r_M will remain the same and r_i will decrease by 1%.

-Select-IIIIIIIVV

4. Now assume that r_RF remains at 5% but r_M increases to 12%. 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 %

5. Now assume that r_RF remains at 5% but r_M falls 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 %