TUTORIAL 5 CAPITAL ASSET PRICING MODEL - CAPM Assuming that the CAPM approach is appropriate, compute the required rate of return for each of the following stocks, given a risk-free rate of 0.07 and an expected return for the market portfolio of 0.13: Stock A B C D E Beta 1.5 1.0 0.6 2.0 1.3 What implications can you draw? On the basis of an analysis of past returns and of inflationary expectations, Marta Gomez feels that the expected return on stocks in general is 12%. The risk-free rate on short-term Treasury securities is now 7%. Gomez is particularly interested in the return prospects for Kessler Electronics Corporation. Based on monthly data for the past five years, she has fitted a characteristic line(SML) to the responsiveness of excess returns of the stock to excess returns of the S&P500 Index and has found the slope of the line to be 1.67. If financial markets are believed to be efficient, what return can she expect from investing in Kessler Electronics Corporation