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32. Consider the Securities Market Line (SML) of the Capital Asset Pricing Model, holding all else...

32. Consider the Securities Market Line (SML) of the Capital Asset Pricing Model, holding all else constant if the firm's beta decreases the required rate of return will? Increase, stay the same decrease, move around randomly

33. Consider the Securities Market Line (SML) of the Capital Asset Pricing Model, for a stock with a positive beta and holding all else constant if the market risk premium increases the required rate of return will: increase, stay the same decrease, move around randomly

34.What is the monthly mortgage payment on a $300,000 mortgage. Assume 30 year fixed mortgage at 4%.

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Answer #1

(32) The Security Market Line (SML) of the CAPM states that the required rate of return is given by the following equation:

Required Rate of Return (R) = Risk-Free Rate + Beta x (Market Portfolio Return/Benchmark Portfolio Return - Risk-Free Rate)

As is observable, the firm's beta is directly proportional to the required rate of return. Hence, if the beta decreases then the firm's required rate of return will decrease too. Logically, a firm with lower beta implies lower risk, thereby demanding a lower required rate of return.

NOTE: Please raise separate queries for solutions to the remaining unrelated questions.

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