REQUIRED RATE OF RETURN Suppose rRF = 3%, rM = 9%, and bi = 1.2....
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REQUIRED RATE OF RETURN
Suppose rRF = 3%, rM = 9%, and bi = 1.2.
What is ri, the required rate of return on Stock i? Round your answer to two decimal places. %
1. Now suppose rRF increases to 4%. The slope of the SML remains constant. How would this affect rM and ri?
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%.
rM will remain the same and ri will increase by 1%.
2. Now suppose rRF decreases to 2%. The slope of the SML remains constant. How would this affect rM and ri?
Both rM and ri will increase by 1%.
Both rM and ri will remain the same.
Both rM and ri will decrease by 1%.
rM will decrease by 1% and ri will remain the same.
rM will remain the same and ri will decrease by 1%.
1. Now assume that rRF remains at 3%, but rM increases to 10%. 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 %.
2. Now assume that rRF remains at 3%, but rM falls to 8%. 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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