Respuesta :
rrf = 9%
rm = 14%
and bi= 1.3
a.what is ri, the required rate of return on stock i?
The answer is “15.5%”.
This is how we calculate and find the value of ri;
Ri= (rrf + (rm– rrf)bi
Now put the values of rrf,rm and bi;= (9% + (14% -09%)1.3
= 15.5%
b.now suppose that rrf (1) increases to 10% or (2) decreases to 8%. the slope of the sml remains constant. how would this affect rm and ri?
1) Ri = (rrf + (rm – rrf)bi
rm increases by 1% from 14 to15% Rm
rrf increases to10%
= 10% + (15% - 10%)(1.3)
Ri = 16.5%
2) Ri = (rrf + (rm – rrf)bi
Rm decreases to 1% from 14 to13%Rm
rrf decreases to 8% from 10 to8%
= 10% + (13% - 8%)(1.3)
Ri = 14.5%
c.now assume that rrf remains at 9% but rm (1) increases to 16% or (2) falls to 13%. the slope of the sml does not remain constant. how would these changes affect ri?
1) ri = rrf +(rm – rrf)bi
Rm increases to16%
= 9% + (16% - 9%)(1.3)
Ri = 18.10%
2) ri = rrf +(rm– rrf)bi
Rm decreases to13%
= 9% + (13% - 9%)(1.3)
Ri = 14.2%
