Question: SHOW ALL WORK TO GET RATING Question 2 (40 points) You have the betas and the yearly expected returns of 2 stocks as follows: Stock

SHOW ALL WORK TO GET RATING Question 2 (40 points) You have SHOW ALL WORK TO GET RATING

Question 2 (40 points) You have the betas and the yearly expected returns of 2 stocks as follows: Stock Beta E (ri) Stock 1 1.5 22% Stock 2 2.0 28% (i) What is the E(rm), meaning the expected return for the market portfolio and the rf, meaning the annual risk-free rate by the CAPM estimation? (24 points) (ii) Given the condition you work out in (i), what is the expected return for a stock with beta of 1.7 ? (16 points)

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