Now assume that rrfnbspremains at 8 but rmnbspincreases to

Question

Suppose r_RF = 8%, r_M = 9%, and b_i = 1.3.

1. What is r_i, the required rate of return on Stock i? Round your answer to two decimal places. %
2. Now suppose r_RF increases to 9%. The slope of the SML remains constant. How would this affect r_M and r_i? 
   
   1. Both r_Mand r_iwill decrease by 1%.
   2. Both r_Mand r_iwill remain the same.
   3. Both r_Mand r_iwill increase by 1%.
   4. r_Mwill remain the same and r_iwill increase by 1%.
   5. r_Mwill increase by 1% and r_iwill remain the same.
3. Now suppose r_RF decreases to 7%. The slope of the SML remains constant. How would this affect r_M and r_i? 
   
   1. Both r_Mand r_iwill decrease by 1%.
   2. r_Mwill decrease by 1% and r_iwill remain the same.
   3. r_Mwill remain the same and r_iwill decrease by 1%.
   4. Both r_Mand r_iwill increase by 1%.
   5. Both r_Mand r_iwill remain the same.
    
4. Now assume that r_RF remains at 8% 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_iwill be %
5. Now assume that r_RF remains at 8% 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_iwill be %