1. Suppose the CAPM holds. Suppose risk-free rate is 2% and market risk premium (E(Rm) - rp)) is 8%. What kind of stocks (in terms of their beta) should have expected return that is negative? 2. Suppose CAPM holds. Suppose stocks X and Y have.betas of -1 and 1, and their expected returns are -5% and 15%, respectively. What is the risk-free rate, and what is the market risk premium (E(Rm) - ))? Hint: you can either solve this problem graphically, or remind yourself how to solve a system of two equations with two unknowns. 3. Suppose CAPM is the correct model for determining expected returns. Suppose risk-free rate is 1% and market risk premium (E(Rm) - rp)) is 6%. Please calculate alphas for assets X, Y, and Z. Asset X Y z Beta 1 Expected return 4% 7% 10% 0.5 1.5