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 = 1.3. Under current conditions, what is rUT, the required rate of return on UT Stock? Round your answer to two decimal places. %Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and rUT?-Select-IIIIIIIVVItem 2I. rM will remain the same and rUT will increase by 1%.II. rM will increase by 1% and rUT will remain the same.III. Both rM and rUT will decrease by 1%.IV.Both rM and rUT will remain the same.V. Both rM and rUT will increase by 1%.Suppose rRF decreases to 3%. The slope of the SML remains constant. How would this affect rM and rUT?-Select-VIVIIIIIIItem 3I. Both rM and rUT will increase by 1%.II. Both rM and rUT will remain the same.III. Both rM and rUT will decrease by 1%.IV. rM will decrease by 1% and rUT will remain the same.V. rM will remain the same and rUT will decrease by 1%.Now assume rRF remains at 4% but rM increases to 10%. The slope of the SML does not remain constant. How would these changes affect rUT?-Select-IIIIIIItem 4I. rUT will increase by 2.6%.II. rUT will remain the same.III. rUT will decrease by 2.6%.Assume rRF remains at 4% but rM falls to 7%. The slope of the SML does not remain constant. How would these changes affect rUT?-Select-IIIIIIItem 5I. rUT will increase by 1.3%.II. rUT will remain the same.III. rUT will decrease by 1.3%.

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Answered: As an equity analyst you are concerned…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 8P

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As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose r_RF = 4%, r_M = 8%, and b_UT = 1.3.

Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to two decimal places.
%
Now suppose r_RF increases to 5%. The slope of the SML remains constant. How would this affect r_M and r_UT?
-Select-IIIIIIIVVItem 2
I. r_M will remain the same and r_UT will increase by 1%.
II. r_M will increase by 1% and r_UT will remain the same.
III. Both r_M and r_UT will decrease by 1%.
IV.Both r_M and r_UT will remain the same.
V. Both r_M and r_UT will increase by 1%.
Suppose r_RF decreases to 3%. The slope of the SML remains constant. How would this affect r_M and r_UT?
-Select-VIVIIIIIIItem 3
I. Both r_M and r_UT will increase by 1%.
II. Both r_M and r_UT will remain the same.
III. Both r_M and r_UT will decrease by 1%.
IV. r_M will decrease by 1% and r_UT will remain the same.
V. r_M will remain the same and r_UT will decrease by 1%.
Now assume r_RF remains at 4% but r_M increases to 10%. The slope of the SML does not remain constant. How would these changes affect r_UT?
-Select-IIIIIIItem 4
I. r_UT will increase by 2.6%.
II. r_UT will remain the same.
III. r_UT will decrease by 2.6%.
Assume r_RF remains at 4% but r_M falls to 7%. The slope of the SML does not remain constant. How would these changes affect r_UT?
-Select-IIIIIIItem 5
I. r_UT will increase by 1.3%.
II. r_UT will remain the same.
III. r_UT will decrease by 1.3%.

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