The market risk premium is 8 percent, and the risk-free rate is 3.6 percent. The beta of stock I is

Suppose you observe the following situation:     Assume these securities are correctly priced. Based on the CAPM, what is the return on the market?    A.  13.99 percent B.  14.42 percent C.  14.67 percent D.  14.78 percent E.  15.01 percent Rf: (0.12 - Rf)/0.8 = (0.16 - Rf)/1.1; Rf = 1.33 percent RM: 0.12 = 0.0133 + 0.8(RM - 0.0133); RM = 14.67 percent

103.

Consider the following information on Stocks I and II:     The market risk premium is 8 percent, and the risk-free rate is 3.6 percent. The beta of stock I is _____ and the beta of stock II is _____.    A.  2.08; 2.47 B.  2.08; 2.76 C.  3.21; 3.84 D.  4.47; 3.89 E.  4.03; 3.71 E(RI) = 0.06(0.15) + 0.69(0.35) + 0.25(0.43) = 0.358 BI: 0.358 = 0.036 + BI (0.08); BI = 4.03 E(RII) = 0.06(-0.35) + 0.69(0.35) + 0.25(0.45) = 0.333 BII: 0.333 = 0.036 + BII (0.08); BII = 3.71

104.

Suppose you observe the following situation:     Assume the capital asset pricing model holds and stock A's beta is greater than stock B's beta by 0.21. What is the expected market risk premium?    A.  8.8 percent B.  9.5 percent C.  12.6 percent D.  17.9 percent E.  20.0 percent E(RA) = 0.22(-0.12) + 0.48(0.10) + 0.30(0.23) = .0906 E(RB) = 0.22(-0.27) + 0.48(0.05) + 0.30(0.28) = .0486 SlopeSML = (.0906 - 0.0486)/0.21 = 20 percent