Required Rate of Return on Stock Assignment | Homework For You

Suppose rRF = 4%, rM = 10%, and bi = 1.2.

  1. What is ri, the required rate of return on Stock i? Round your answer to one decimal place.  %
  2. 1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
    1. Both rM and ri will increase by 1 percentage point.
    2. rM will remain the same and ri will increase by 1 percentage point.
    3. rM will increase by 1 percentage point and ri will remain the same.
    4. Both rM and ri will decrease by 1 percentage point.
    5. Both rM and ri will remain the same
  3. 2. Now suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and ri?
    1. rM will decrease by 1 percentage point and ri will remain the same.
    2. rM will remain the same and ri will decrease by 1 percentage point.
    3. Both rM and ri will increase by 1 percentage point.
    4. Both rM and ri will remain the same.
    5. Both rM and ri will decrease by 1 percentage point.
  4. 1. Now assume that rRF remains at 4%, but rM increases to 11%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.The new ri will be   %.

    2. Now assume that rRF remains at 4%, but rM falls to 9%. The slope of the SML does not remain constant. How would these changes affect ri? Round your answer to one decimal place.

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    The new ri will be   %. Get Finance homework help today