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1. Suppose the CAPM holds. Suppose risk-free rate is 2% and market risk premium (E(Rm) - ;)) is 8%. What kind of stocks in terms
1. Suppose the CAPM holds. Suppose risk-free rate is 2% and market risk premium (E(Rm) - ;)) 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) - r;))? Hint: you can either solve this problem graphically, or remind yourself how to solve a system of two equations with unknowns
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