As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUT = 1.8. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to one decimal place. % Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will remain the same. II. Both rM and rUT will increase by 1 percentage point. III. rM will remain the same and rUT will increase by 1 percentage point. IV. rM will increase by 1 percentage point and rUT will remain the same. V. Both rM and rUT will decrease by 1 percentage point. Now suppose rRF decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUT? I. Both rM and rUT will increase by 1 percentage point. II. Both rM and rUT will remain the same. III. Both rM and rUT will decrease by 1 percentage point. IV. rM will decrease by 1 percentage point and rUT will remain the same. V. rM will remain the same and rUT will decrease by 1 percentage point. Now assume rRF remains at 5% but rM increases to 14%. The slope of the SML does not remain constant. How would these changes affect rUT? I. rUT will remain the same. II. rUT will increase by 3.6 percentage point. III. rUT will decrease by 3.6 percentage point. Now assume rRF remains at 5% but rM falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUT? I. rUT will decrease by 1.8 percentage point. II. rUT will remain the same. III. rUT will increase by 1.8 percentage point.
As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 5%, rM = 12%, and bUT = 1.8.
- Under current conditions, what is rUT, the required
rate of return on UT Stock? Round your answer to one decimal place.%
-
- Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT?
I. Both rM and rUT will remain the same.
II. Both rM and rUT will increase by 1 percentage point.
III. rM will remain the same and rUT will increase by 1 percentage point.
IV. rM will increase by 1 percentage point and rUT will remain the same.
V. Both rM and rUT will decrease by 1 percentage point. -
Now suppose rRF decreases to 4%. The slope of the SML remains constant. How would this affect rM and rUT?
I. Both rM and rUT will increase by 1 percentage point.
II. Both rM and rUT will remain the same.
III. Both rM and rUT will decrease by 1 percentage point.
IV. rM will decrease by 1 percentage point and rUT will remain the same.
V. rM will remain the same and rUT will decrease by 1 percentage point.
- Now suppose rRF increases to 6%. The slope of the SML remains constant. How would this affect rM and rUT?
-
- Now assume rRF remains at 5% but rM increases to 14%. The slope of the SML does not remain constant. How would these changes affect rUT?
I. rUT will remain the same.
II. rUT will increase by 3.6 percentage point.
III. rUT will decrease by 3.6 percentage point. -
Now assume rRF remains at 5% but rM falls to 11%. The slope of the SML does not remain constant. How would these changes affect rUT?
I. rUT will decrease by 1.8 percentage point.
II. rUT will remain the same.
III. rUT will increase by 1.8 percentage point.
- Now assume rRF remains at 5% but rM increases to 14%. The slope of the SML does not remain constant. How would these changes affect rUT?
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