Question

Required Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 4%, rM = 8%, and bUT = 2.2. Under current conditions, what is rUT, the required rate of return on UT Stock?
Round your answer to two decimal places. 12.8 %
Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and rUT?

I. rM will increase by 1% and rUT will remain the same.
II. Both rM and rUT will decrease by 1%.
III.Both rM and rUT will remain the same.
IV. Both rM and rUT will increase by 1%.
V. rM will remain the same and rUT will increase by 1%.

Answer 1

Answer:

Answer for the question:

Required Rate of Return As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 4%, rM = 8%, and bUT = 2.2. Under current conditions, what is rUT, the required rate of return on UT Stock?

Round your answer to two decimal places. 12.8 %

Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and rUT?

I. rM will increase by 1% and rUT will remain the same.

II. Both rM and rUT will decrease by 1%.

III.Both rM and rUT will remain the same.

IV. Both rM and rUT will increase by 1%.

V. rM will remain the same and rUT will increase by 1%.

Is given in the attachment.

Explanation: