Question $3[5$ points$]$:

a$.$ According to the Capital Asset Pricing Model, what must be the beta of a portfolio with $E[r_p]=12\%,$ if

$r_f=3\%$ and $E[r_M]=8\%?$

b$.$ The market price of a security is $$50.$ Its expected rate of return is $16\%.$ The risk$-$free rate is $8\%,$ and the

market risk premium is $8\mathrm{.}5\%.$ What will be the market price of the security if its covariance with the market

portfolio doubles $($and all other variables remain unchanged$)?$ Assume that the stock is expected to pay a

constant dividend in perpetuity