As an equity analyst you are concerned with what will


As an equity analyst you are concerned with what will happen to the required return to Universal Toddler industries stock as market conditions change suppose rRF=5%,rM=12% and buTT=1.4.

Under current conditions, what is RuTI? The required rate of return on UTI stock?

Now suppose rRF (1) increase to 6% 0r (2) decrease to 4% the Slope of the SMI. Remains constant. How would this affect rM and RUN?

Now Assume rRF remains at 5% but RM (1) increases to 14% or (2) falls to 11%. The shope of the SMI does not remain constant. How would these changes affect rUN?

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