Now assume rrf remains at 9 percent but rm 1 increases to, Business Management

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Now assume rrf remains at 9 percent but rm 1 increases to

Suppose r_RF 9%, r_M 14%, and bi 1.3.

a. What is r_i, the required rate of return on Stock i?

b. Now suppose r_RF (1) increases to 10 percent or (2) decreases to 8 percent. The slope of the SML remains constant. How would this affect r_M and r_i?

c. Now assume rRF remains at 9 percent but rM (1) increases to 16 percent or (2) falls to 13 percent. The slope of the SML does not remain constant. How would these changes affect r_i?

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