A.

Alpha and the CAPM A stock with a beta of 0.77 has an expected return of 12% and an alpha of 1.5% when the market expected return is 13% . What must be the risk free rate that satisfies these conditions?

2.14%

2.13%

2.16%

2.15%

B.

Portfolio Beta An investor places $6,000 in Stock A, $5,000 in Stock B and $12,000 in Stock C. Stock A has a beta of 1.05, Stock B has a beta of 1.25 and Stock C has a beta of 1.4. What is the resulting portfolio beta?

1.27

1.28

1.35

1.23

C.

CAPM Implications Jill has low risk aversion and Jack has high risk aversion. Both go to Sherry, a financial planner, for investment advice. Ignoring taxes and liquidity concerns according to the CAPM Sherry should

I. recommend the same risky portfolio for both clients

II. recommend a higher risk stock portfolio for Jack than for Jill

III. recommend that Jill put more money in the risky portfolio than Jack

IV recommend identical complete portfolios for both clients

II, III

I, III

IV

I, IV