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  • The Treasury bill rate is 3%, and the expected return on the market portfolio is 13%. Using the capital asset pricing model with the aforementioned assumptions regarding risk free rate and market rate to answer the following questions:
  • What is the risk premium on the market?
  • What is the required return on an investment with a beta of 1.5? Is the beta above or below the Market beta?

If an investment has an expected return of 9.8%(and a Beta of .8), would this project be considered to have an acceptable NPV? Why?If the internal rate of return was calculated to be 9.8%, would we accept the project given the expected return calculated in part D, in other words, given the CAPM calculated in part D?  If the market expects a return of 11.2% from stock X, what is its beta (Here we solve for Beta, using all given components of CAPM, except beta which is not given - we )?

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