Required Rate of Return As an equity analyst you are concerned with what will ha

Question

Required Rate of Return 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 = 896, r,-8%, and bUT = 2. a. Under current conditions, what is rur, the required rate of return on UT Stock? Round your answer to two decimal places 1. Now suppose rRF increases to 9%. The slope of the SML remains constant. How would this affect rM and ru I. Both rM and rUT will decrease by 196. II.Both rM and ruT will remain the same. 111. Both rM and rUT will increase by 1%. iv. rM will remain the same and rUT will increase by 1%. V. rM will increase by 196 and rUT will remain the same Select- 2. Now suppose rr decreases to 7%. The slope of the SML remains constant. How would this affect rM and rur? I. Both rM and ruT will decrease by 196. II. r will decrease by 1% and ruT Will remain the same 111. rM will remain the same and rUT will decrease by 1% IV. Both rM and rUT will increase by 1%. V. Both rM and rur will remain the same. Select- v C. 1. Now assume rRF remains at 8% but I'm Increases to 10%. The slope of the SML does not remain constant. How would these changes affect rur? I. ruT will remain the same 11. rUT will increase by 4.4%. 111. rUT will decrease by 4.4% Select- V 2. Now assume rRF remains at 8% but I'm falls to 7%. The slope of the SML does not remain constant. How would these changes affect rur? rUT will increase by 2.2%. II. ruT Will remain the same 111. rUT will decrease by 2.2% Select-

Explanation / Answer

a) Calculation of required rate of return of Universal Toddler Data given in the question Risk free rate (rRF) 8% Market rate (rM) 8% and Beta (b) 2.2 Using CAPM model, we can calculate the required rate of return: = Rf + (Rm-Rf)b = 8% + (8%-8%)2.2 = 8% So the answer of the first part is 8%

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.