8-27. (Using the CAPM to find expected returns) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent, and the expected return for the market portfolio is 9 percent. Stock K G B U Beta 1.12 1.3 0.75 1.02 a. Using the CAPM, what rate of return should Grace require for each individual security? b. How does your evaluation of the expected rates of return for Grace change if the risk-free rate rises to 4.5 percent and the market risk premium is only 5 percent? c. Which market risk premium scenario (from part a or b) better fits a recessionary environment? A period of economic expansion? Explain your response.

3-27. (Using the CAPM to find expected returns) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent, and the expected return for the market portfolio is 9 percent. a. Using the CAPM, what rate of return should Grace require for each individual security? b. How does your evaluation of the expected rates of return for Grace change if the risk-free rate rises to 4.5 percent and the market risk premium is only 5 pereent? c. Which market risk premium scenario (from part a or b) better fits a recessionary environment? A period of economic expansion? Explain your response. 3-27. (Using the CAPM to find expected returns) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent, and the expected return for the market portfolio is 9 percent. a. Using the CAPM, what rate of return should Grace require for each individual security? b. How does your evaluation of the expected rates of return for Grace change if the risk-free rate rises to 4.5 percent and the market risk premium is only 5 pereent? c. Which market risk premium scenario (from part a or b) better fits a recessionary environment? A period of economic expansion? Explain your response