Question

pdPCOA80101. uppose rRF = 796, rM-10%, and bi-1.9. a. What is ri, the required rate of return on Stock i? Round your answer to two decimal places. b. I. Now suppose rRF increases to 8%. The slope of the SML remains constant. How would this affect rM and r? I. rM will increase by 1% and r will remain the same. 11. Both rM and r, will decrease by 1%. III. Both rM and ri, will remain the same. IV. Both rM and ri will increase by 196. V. rM will remain the same and ri will increase by 1%. Select-▼ 2. Now suppose RF decreases to 6%. The slope of the SML remains constant. How would this affect rM and ri? I. Both rM and ri will increase by 1%. II. Both rM and r, will remain the same. 111. Both rM and r, will decrease by 1%. IV. rM will decrease by 1% and ri will remain the same. v. rs, will remain the same and r, will decrease by 1%. Select. c. 1. Now assume that rRF remains at 7%, but re lncreases to 11%. The slope of the SML does not remain constant. How would these changes affect n? Round your answer to two decimal places The new n will be 2. Now assume that rRF remains at 7%, but r," falls to 9%. The slope of the SML does not remain constant. How would these changes affect r? Session s83 Round your answer to two decimal places.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home ert Page Layout Formulas Data Review V Add-Ins 義Cut aCopy Format Painter Σ AutoSum , Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Alignment Cells dting IV630 Formula Bar IU IW ix IY iZ JA JC JD JE JF JG JH 630 631 632 633 634 635 636 637 638 639 rM-1096 rRf_ 7% bi-1.9 under current conditions, ri ke-7% + 1.9(1096-796) 12.70% ri-12.70% now if rRf-8% slope of SML remains same that is rM_rRf-10%-7%-3% as earlier 641 642 643 644 645 646 647 648 4 rM-1196 13.70% ke-8% + 1.9(1196-896) r1-13.70% BOTH Rm & ri WILL INCREASE BY 1% KE CAPM UTILITY, SHARPE, beta bond covextyDGM future INDEX INTL CAP BUD PV, FV, ANNUITY DIR right clean YIELD bond tru WACCRESI ex i erences: AG470 08:41 ENG 26-03-2019

Home ert Page Layout Formulas Data Review V Add-Ins 義Cut aCopy Format Painter AutoSum Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Alignment Cells dting IZ650 Formula Bar IU IV IW ix IY JA JC JD JE JF JG JH 650 651 652 653 654 655 656 657 658 659 660 661 662 663 2 now if rRfe 6% slope of SML remains same that is rM_rRf = 3% as earlier rM_rRF-3% rM-696-396 rM-9% ke-6% + 1.9(996-6%)- ri-11.7% BOTH Rm & ri WILL DECREASE BY 1% 11.70% rM-1196 ke-7% + 1.9(11%-7%)- ri-14.6% 665 14.60% 667 668 4HKE CAPM UTILITY, SHARPE, beta bond future INDEX INTL CAP BUD PV, FV, ANNUITY DIR right clean YIELD bond tru WACC RESI ex di14 | erences: AG470 26-03-2019

Home ert Page Layout Formulas Data Review V Add-Ins 義Cut Σ AutoSum , 11 Arap Text copy." Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛 Conditional Format C Formatting ▼ as Table-styles ▼ Insert Delete Format Format Painter Sort &Find & Filter Select 袖 2 Clear , ▼ ▼ ▼ Clipboard IW680 IU Font Alignment Cells dting Formula Bar IV IW ix IY iZ JA JB JC JE JF JG JH 662 663 rM-1196 ke-7% + 1.9(11%-7%)- ri-14.60% 665 14.60% 667 668 669 670 671 672 673 674 675 676 677 678 679 680 4 KE CAPM UTILITY, SHARPE, beta rM-9% ke-7% + 1.9(9%-7%)- ris 10.80% 10.80% bond c future INDEX · INTL CAP BUD PV, FV, ANNUITY DIR right clean YIELD bond tru WACCRESI ex i erences: AG470 26-03-2019