1) According to CAPM, what must be the beta of a portfolio with E(rP) = 0.18, if rf = 0.05 and E (rM) = 0.11?

Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

2) What is the slope of the security market line?

a) expected return

b) Market risk premium

c) beta

d) risk-free rate

3) Assume that the annual average excess return of S&P 500 is 7.9%, and the standard deviation is 23.2%. What is a reasonable estimate of the average risk aversion in the U.S.? Round your answer to two decimal places.

4) Assume that the annual average excess return of S&P 500 is 7.9%, and the standard deviation is 23.2%. What is a reasonable estimate of the average market price of risk in the U.S.? Round your answer to two decimal places.

5) What is the expected return of a zero-beta security under the CAPM?

a) market return

b) market risk premium

c) T-bill return

d) zero

6) The risk-free rate is 7%. The expected market rate of return is 15%. If the expected return of a stock with a beta of 1.3 is 12%, the stock is

a) underpriced because it has positive alpha

b) overpriced because it has positive alpha

c) underpriced because it has negative alpha

d) overpriced because it has negative alpha