P8–25 Beta coefficients and the capital asset pricing model Katherine Wilson is wondering how much risk she must undertake to generate an acceptable return on her portfolio.

The risk-free return currently is 5%. The return on the overall stock market is 16%. Use the CAPM to calculate how high the beta coefficient of Katherine’s portfolio would have to be to achieve each of the following expected portfolio returns.

a. 10%

b. 15%

c. 18%

d. 20%

e. Katherine is risk averse. What is the highest return she can expect if she is unwilling to take more than an average risk?