Question: security beta Standard deviation Expected return S&P 500 1.0 20% 10% Risk free security 0 0 4% Stock d ( ) 30% 13% Stock e

security

beta

Standard deviation

Expected return

S&P 500

1.0

20%

10%

Risk free security

0

0

4%

Stock d

( )

30%

13%

Stock e

0.8

15%

( )

Stock f

1.2

25%

( )

3) If stock F has an average return of 12%,

1. find the expected return based on CAPM equation and beta 1.2

2. find the abnormal returns, alpha

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