Question $4$: CAPM $(45$ points$)$

The expected market return, Rm $=12\%.$ The expected return on a risk$-$free asset, Rf $=5\%.$

a$)$ Stock A has a beta of $0\mathrm{.}8.$ What is the expected return of stock A according to CAPM?

If stock A offers an actual return of $7\%,$ is stock A overvalued or undervalued?

b$)$ Stock B offers a return of $15\%.$ If stock B is correctly priced by CAPM, what is the beta

of Stock B$?$

c$)$ Project C has a forecasted return of $7\%$ and a beta of $0\mathrm{.}6.$ Should we accept project C$?$

Why?