Question

Now suppose rRF (1) increases to 10% or (2) decreases to 8%. The slope of the SML remains constant. How would this affect rM and ri?

Answer 1

The slope of SML remaining constant implies that the market risk premium hasn’t changed.
The initial value of the market risk premium was 5%. The CAPM equation can be written as:

ri= rRF + bi x Market Risk Premium

(1) rRF = 10%
ri= 10% + 1.3 x 5% = 16.5%

(2) rRF = 8%
ri= 8% + 1.3 x 5% = 14.5%

Answer 2

Welcome to Openstudy.

Answer 3

tq..

Answer 4

Anytime.