Suppose rRF = 6%, rM = 11%, and bi = 1.5. 2. Now suppose rRF decreases to...

60.1K

Verified Solution

Question

Finance

Suppose r_RF = 6%, r_M = 11%, andb_i = 1.5.
2. Now suppose r_RF decreases to 5%. The slope of theSML remains constant. How would this affect r_M andr_i?

-Select-IIIIIIIVVItem 3
What is r_i, the required rate of return on Stock i?Round your answer to two decimal places.
%
1. Now suppose r_RF increases to 7%. The slope of theSML remains constant. How would this affect r_M andr_i?
Both r_M and r_i will increase by 1%.
r_M will remain the same and r_i willincrease by 1%.
r_M will increase by 1% and r_i will remainthe same.
Both r_M and r_i will decrease by 1%.
Both r_M and r_i will remain the same.

-Select-IIIIIIIVVItem 2
r_M will decrease by 1% and r_i will remainthe same.
r_M will remain the same and r_i willdecrease by 1%.
Both r_M and r_i will increase by 1%.
Both r_M and r_i will remain the same.
Both r_M and r_i will decrease by 1%.
1. Now assume that r_RF remains at 6%, butr_M increases to 12%. The slope of the SML does notremain constant. How would these changes affect r_i?Round your answer to two decimal places.
The new r_i will be  %.
2. Now assume that r_RF remains at 6%, butr_M falls to 10%. The slope of the SML does not remainconstant. How would these changes affect r_i? Round youranswer to two decimal places.
The new r_i will be  %.

Answer & Explanation Solved by verified expert

3.7 Ratings (681 Votes)

SEE THE IMAGE ANY See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Suppose rRF = 6%, rM = 11%, andbi = 1.5.2. Now suppose rRF decreases to 5%. The slope of theSML remains constant. How would this affect rM andri?-Select-IIIIIIIVVItem 3What is ri, the required rate of return on Stock i?Round your answer to two decimal places.%1. Now suppose rRF increases to 7%. The slope of theSML remains constant. How would this affect rM andri?Both rM and ri will increase by 1%.rM will remain the same and ri willincrease by 1%.rM will increase by 1% and ri will remainthe same.Both rM and ri will decrease by 1%.Both rM and ri will remain the same.-Select-IIIIIIIVVItem 2 rM will decrease by 1% and ri will remainthe same.rM will remain the same and ri willdecrease by 1%.Both rM and ri will increase by 1%.Both rM and ri will remain the same.Both rM and ri will decrease by 1%.1. Now assume that rRF remains at 6%, butrM increases to 12%. The slope of the SML does notremain 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 6%, butrM falls to 10%. The slope of the SML does not remainconstant. How would these changes affect ri? Round youranswer to two decimal places.The new ri will be %.