eBook Ippose TRF = 3%, TM = 9%, and b; = 1.4. a. What is r, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose TRF increases to 4%. The slope of the SML remains constant. How would this affect rm and r? I. TM will remain the same and r, will increase by 1 percentage point. II. ™M will increase by 1 percentage point and r will remain the same. III. Both rm and n will decrease by 1 percentage point. IV. Both rm and r, will remain the same. V. Both rm and r will increase by 1 percentage point. a -Select- A Problem Walk-Through Mai the CML affestu
eBook Ippose TRF = 3%, TM = 9%, and b; = 1.4. a. What is r, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose TRF increases to 4%. The slope of the SML remains constant. How would this affect rm and r? I. TM will remain the same and r, will increase by 1 percentage point. II. ™M will increase by 1 percentage point and r will remain the same. III. Both rm and n will decrease by 1 percentage point. IV. Both rm and r, will remain the same. V. Both rm and r will increase by 1 percentage point. a -Select- A Problem Walk-Through Mai the CML affestu
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![# Problem 8.12 (Required Rate of Return)
Suppose \( r_{RF} = 3\% \), \( r_M = 9\% \), and \( b_j = 1.4 \).
### a.
What is \( r_i \), the required rate of return on Stock j? Round your answer to one decimal place.
\( r_i = \) __________ %
### b.
1. Now suppose \( r_{RF} \) increases to 4%. The slope of the SML remains constant. How would this affect \( r_M \) and \( r_i \)?
- I. \( r_M \) will remain the same and \( r_i \) will increase by 1 percentage point.
- II. \( r_M \) will increase by 1 percentage point and \( r_i \) will remain the same.
- III. Both \( r_M \) and \( r_i \) will decrease by 1 percentage point.
- IV. Both \( r_M \) and \( r_i \) will remain the same.
- V. Both \( r_M \) and \( r_i \) will increase by 1 percentage point.
\( \text{Select:} \) [ ]
2. Now suppose \( r_{RF} \) decreases to 2%. The slope of the SML remains constant. How would this affect \( r_M \) and \( r_i \)?
- I. \( r_M \) will remain the same and \( r_i \) will decrease by 1 percentage point.
- II. Both \( r_M \) and \( r_i \) will increase by 1 percentage point.
- III. Both \( r_M \) and \( r_i \) will remain the same.
- IV. Both \( r_M \) and \( r_i \) will decrease by 1 percentage point.
- V. \( r_M \) will decrease by 1 percentage point and \( r_i \) will remain the same.
\( \text{Select:} \) [ ]
### c.
1. Now assume that \( r_{RF} \) remains at 3%, 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 one decimal place.
The new \( r_i \) will be __________ %.
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Transcribed Image Text:# Problem 8.12 (Required Rate of Return)
Suppose \( r_{RF} = 3\% \), \( r_M = 9\% \), and \( b_j = 1.4 \).
### a.
What is \( r_i \), the required rate of return on Stock j? Round your answer to one decimal place.
\( r_i = \) __________ %
### b.
1. Now suppose \( r_{RF} \) increases to 4%. The slope of the SML remains constant. How would this affect \( r_M \) and \( r_i \)?
- I. \( r_M \) will remain the same and \( r_i \) will increase by 1 percentage point.
- II. \( r_M \) will increase by 1 percentage point and \( r_i \) will remain the same.
- III. Both \( r_M \) and \( r_i \) will decrease by 1 percentage point.
- IV. Both \( r_M \) and \( r_i \) will remain the same.
- V. Both \( r_M \) and \( r_i \) will increase by 1 percentage point.
\( \text{Select:} \) [ ]
2. Now suppose \( r_{RF} \) decreases to 2%. The slope of the SML remains constant. How would this affect \( r_M \) and \( r_i \)?
- I. \( r_M \) will remain the same and \( r_i \) will decrease by 1 percentage point.
- II. Both \( r_M \) and \( r_i \) will increase by 1 percentage point.
- III. Both \( r_M \) and \( r_i \) will remain the same.
- IV. Both \( r_M \) and \( r_i \) will decrease by 1 percentage point.
- V. \( r_M \) will decrease by 1 percentage point and \( r_i \) will remain the same.
\( \text{Select:} \) [ ]
### c.
1. Now assume that \( r_{RF} \) remains at 3%, 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 one decimal place.
The new \( r_i \) will be __________ %.
2.
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