1. Assumed the betas for securities A,B, and C are shown here.

Security Beta

A 1.4

B .80

C -.90

A. Calculate the change in return for each security if the market experiences an increase in its rate of return of 13.2% over the next period.

B. Calculate the change in return for each security if the market experiences a decrease in its rate of return of 10.8% over the next period.

C. Which security might perform best during an economic downturn? Why?

2. Use the capital asset pricing model to find the required rate of return for each of the following securities in light of the data given.

Security Risk Free Rate (%) Market Return (%) Beta

A 5 8 1.3

B 8 13 .9

C 9 12 .2

D 10 15 1.0