1) Consider the following information: Portfolio Expected Return Beta Risk-free 5 % 0 Market 11.8 1.0 A 9.8 2.2 a. Calculate the the return predicted by CAPM for a portfolio with a beta of 2.2. (Round your answer to 2 decimal places.) Return % b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha % c. If the simple CAPM is valid, is the situation above possible? Yes No

2) Consider the following information: Portfolio Expected Return Beta Risk-free 12 % 0 Market 12.6 1.0 A 10.6 0.7 a. Calculate the expected return of portfolio A with a beta of 0.7. (Round your answer to 2 decimal places.) Expected return % b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha % c. If the simple CAPM is valid, is the above situation possible? Yes No