CAPITAL ASSET PRICING MODEL -

(A) Use Capital Asset Pricing Model (CAPM) to calculate the expected return on a stock that has a beta of 2.5 if the risk-free rate is 3 percent and the market portfolio is expected to pay 11 percent? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

BETA -

(B) Company X was a steel company for the first hundred years of its existence but it has been a health care company for the past 25 years. In estimating Company X current beta, why would you get an inaccurate beta if you used all 125 years of its stock returns? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

AVERAGE RETURN -

(C) You own a stock that has paid a 10% return for the past five years. In Years 1 and 2, it paid a return of 8 percent and in Years 3 and 4 it paid a return of 12 percent. What return did it pay in Year 5? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).