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Suppose rR=6%,rM=11%, and bj=1.1. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. \% b. 1. Now suppose ref increases to 7%. The slope of the SML remains constant. How would this affect rM and n ? 1. Both m and n will remain the same. 11. Both rm and n will increase by 1 percentage point. III. nM will remain the same and n will increase by 1 percentage point. IV. rM will increase by 1 percentage point and n will remain the same. V. Both n and n will decrease by 1 percentage point. 2. Now suppose rar decreases to 5%. The slope of the SML remains constant. How would this affect m and n ? 1. Both m and n will remain the same. II. Both nM and n will decrease by 1 percektage point. III. ns will decrease by 1 percentage point and n will remain the same. IV, n will remain the same and n will decrease by 1 percentage point. V. Both m and n will increase by 1 percentage point. c. 1. Now assume that rer remains at 6%, but m increases to 12%. The slope of the SML. does not remain constant. How would these changes affect n ? Round your answer to one decimal place. The new n will be Z%. 2. Now assume that ror remains at 6%, but n falis to 10%. The slope of the SML does not remain constant, How would these changes affect n ? Round your answer to one decimal place. The new n will be 8%

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