Question: QUESTION 5 (20 marks) (a) You are given that the return on the market portfolio is expected to be 8%. The effective risk free interest

QUESTION 5 (20 marks) (a) You are given that the return on the market portfolio is expected to be 8%. The effective risk free interest rate is 5% and the following table that shows the beta and expected return for the 3 stocks: Stock B Expected Return Market Value X 0.8 7.5% $7,000 Y 1.0 8.0% $8,000 Z 8.0% $10,000 1.2 (i) Determine if each of the stocks lies on the security market line. (9 marks) (b) (ii) Calculate the expected return for the above portfolio. (6 marks) Assume that the Capital Asset Pricing Model (CAPM) applies and the security's return on market return is R = a + BRM + E, where e is a random variable with mean 0. Find the expression for a

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