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0 Question 5 As an equity analyst you are concerned with what will happen to the required return for Universal Toddler's stock as market conditions change. Suppose TRF = 6%, TM = 13%, and bur 1.7. According to CAPM, the required return for Universal Toddler is rut= 17.9%. = a. Now suppose TRF increases to 7%. The market risk premium, RPM. (i.e., the slope of the SML) remains constant. How would this affect FM and rur? [Select] 1. Both rm and rut will remain the same. II. Both TM and rut will increase by 1 percentage point. III. TM will remain the same and rut will increase by 1 percentage point. IV. rm will increase by 1 percentage point and rur will remain the same. V. Both TM and ruT will decrease by 1 percentage point. 2 pts b. Now assume FRF remains at 6% but rM increases to 15%. The market risk premium, RPM. (i.e., the slope of the SML) does not remain constant. How would these changes affect rut? [Select] 1. TUT will remain the same. II. rUt will increase by 3.4 percentage point. III. TUT will decrease by 3.4 percentage point. MacBook Pro