Suppose r_{RF} = 6%, r_{M} = 9%, and b_{i} = 1.6.
2. Now suppose r_{RF} decreases to 5%. The slope of the SML remains constant. How would this affect r_{M} and r_{i}?
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 the SML remains constant. How would this affect r_{M} and r_{i}?
1. Now assume that r_{RF} remains at 6%, but r_{M} increases to 10%. The slope of the SML does not remain 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%, but r_{M} falls to 8%. The slope of the SML does not remain constant. How would these changes affect r_{i}? Round your answer to two decimal places.
The new r_{i} will be %.What is ri, the required rate of return on Stock i?
=6%+1.6*(9%-6%)
=10.8000%
Now suppose rRF increases to 7%. The slope of the SML remains constant. How would this affect rM and ri?
Both rM and ri will increase by 1%.
Now suppose rRF decreases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
Both rM and ri will decrease by 1%.
Now assume that rRF remains at 6%, but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect ri?
The new ri will be =6%+1.6*(10%-6%)=12.4000%
Now assume that rRF remains at 6%, but rM falls to 8%. The slope of the SML does not remain constant. How would these changes affect ri?
The new ri will be =6%+1.6*(8%-6%)=9.2000%
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