: a) Use the basic equation for the capital asset pricing model (CAPM) to Find the risk-free rate for a firm with a required return of 15% and a beta of 1.25 when the market return is 14% (marks 3)

b) Find the beta of a portfolio of three stocks. One third of the portfolio is invested in each of the stocks. The stocks and their betas are as follows: Mallmart, beta 1.10; Peak Power Co., beta 0.85; and Micro Ease, beta 1.40.

c) Semper pump company has a permanent funding requirement of $135,000 in operating asset and seasonal funding requirement that vary between $0 and $990,000 and average $101,250. If simper can borrow short-term funds at 6.25% and long term funds at 8%, and if it can earn 5% on the investment of any surplus balances, than determine the total annual cost under

i) aggressive strategy ii) conservative strategy