Question: The expected return on the S&P 500 is 12% and the risk-free rate is 5%. What does CAPM tell us is the expected return on

The expected return on the S&P 500 is 12% and the risk-free rate is 5%. What does CAPM tell us is the expected return on a stock with a beta of 0.2? If, one year later, the beta on the stock rises to 0.4, all other things held equal, what will happen to the expected return of the investment? Why might the stock price changing make sense within the context of risk and return?

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