As an equity analyst you are concerned with what will happen to the requiredreturn to Universal Toddler’s stock as market conditions change. SupposerRF 5 5%, rM 5 12%, and bUT 5 1.4.a. Under current conditions, what is rUT, the required rate of return on UTstock?b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope ofthe SML remains constant. How would this affect rM and rUT?c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to11%. The slope of the SML does not remain constant. How would thesechanges affect rUT?

As an equity analyst you are concerned with what will happen to the requiredreturn to Universal Toddler’s stock as market conditions change. SupposerRF 5 5%, rM 5 12%, and bUT 5 1.4.a. Under current conditions, what is rUT, the required rate of return on UTstock?b. Now suppose rRF (1) increases to 6% or (2) decreases to 4%. The slope ofthe SML remains constant. How would this affect rM and rUT?c. Now assume rRF remains at 5% but rM (1) increases to 14% or (2) falls to11%. The slope of the SML does not remain constant. How would thesechanges affect rUT?

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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