The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model:
a. Draw a graph similar to Figure 8.6 showing how the expected return varies with beta.
b. What is the risk premium on the market?
c. What is the required return on an investment with a beta of 1.5?
d. If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV?
e. If the market expects a return of 11.2% from stock X, what is its beta?
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