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...

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.

1. Under current conditions, what is r_UT, the required rate of return on UT Stock? Round your answer to two decimal places.
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2. 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%.
   
   
   
   


3. 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%.
   
   
   
   


4. 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%.
   
   
   
   


5. 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%.