Stock XYZ has an expected return of 12% and B = 1. Stock ABC is expected to return 13% with a beta of 1.5%. The expected return of the market is 11% and r1 = 5%. a) According to the CAPM, which stock is better to buy? What is the alpha of each stock? b) The risk-free rate is 8% and the expected return on the market portfolio is 16%. A company considers a project with an estimated beta of 1.3. What is the required rate of return on the project? If the IRR of the project is 19%, what is the alpha of the project?

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a According to the Capital Asset Pricing Model CAPM the expected return of a stock is given by the f... View the full answer