Required rate of returnsuppose rrf 3 rm 13 and bi 12what, Ask an Expert

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Required rate of return

Suppose rRF = 3%, rM = 13%, 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?

a. rM will increase by 1% and ri will remain the same.

b. Both rM and ri will decrease by 1%.

c. Both rM and ri will remain the same.

d. Both rM and ri will increase by 1%.

e. 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?

a. Both rM and ri will decrease by 1%.

b. rM will decrease by 1% and ri will remain the same.

c. rM will remain the same and ri will decrease by 1%.

d. Both rM and ri will increase by 1%.

e. Both rM and ri will remain the same.

3. Now assume that rRF remains at 3% but rM increases to 14%. 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 ____%

4. Now assume that rRF remains at 3% but rM falls to 12%. 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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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92321954

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