Question: VI. The Capital Asset Pricing Model - a) Explain the CAPM equation E(rj) = r + j[E(rm) r]. b) Assume two stocks, Ford and

VI. The Capital Asset Pricing Model - a) Explain the CAPM equation E(rj) = r + j[E(rm) r]. b) Assume two stocks, Ford and General Mills, with respective beta risks 1.5 and 0.14. Assume further that the risk-free rate is 5% and the expected market return is 10%. Based on the CAPM what are the expected returns on the two stocks? Can you explain the difference in the expected returns of the two stocks?

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