1. Suppose Riskfree rate (Rf) = 9%, Market return (Rm) = 14%, and beta = 1.3. The required rate of return of stock i is: 15.5%

Now suppose that Rf increased to 10%, and the slope of the SML remains constant. What is the market return Rm?

a) 13%

b) 14%

c) 15%

d) 16%

e) 17%

2. A company issued 500 shares of stock with a par value of $1/share at $20/share. Prepare the general journal entry.

DEBIT: Common Stock for $500 and Additional Paid in Capital for $9,500; CREDIT: Cash for $10,000

DEBIT: Cash for $10,000; CREDIT: Common Stock for $500 and Additional Paid in Capital for $9,500

DEBIT: Cash for $10,000; CREDIT: Common Stock for $9,500 and Additional Paid in Capital for $500

DEBIT: Cash for $10,000; CREDIT: Common Stock for $10,000