1) The historical average market risk premium is 8 percent; the risk-free rate is 3.5 percent; and the beta of Dell Computer is 2.21. Determine the expected return of Dell Computer in accordance with the CAPM. a. 0.1574 b. 0.3021 c. 0.2118 d. 0.1863 2) (Continuation) Assuming that the historical average risk-free rate is also 0.035, and based on the previous information, calculate the expected return of the market portfolio. a. 0.115 b. 0.125 c. 0.10 d. 0.20 3) (Continuation) Stainless-Steel Conductor Co.' s beta is 0.5; the actual return is 0.05. How can you replicate and improve this investment with a combination of risk-free assets and market portfolio? a. Invest 0.75 of your savings in T-bills and the rest in market portfolio, for a return of 0.055. b. Borrow an amount equivalent to 100 percent of your savings and invest all in the market portfolio, for a return of 0.195. c. Invest 0.5 of your savings in T-bills and the rest in market portfolio, for a return of 0.10. d. Invest 0.5 of your savings in T-bills and the rest in market portfolio, for a return of 0.075. 4) (Continuation) In the previous case, and assuming that markets are efficient, what will happen with the price and return of StainlessSteel Conductor Co.? a. Fall in the demand; increase of the stock' s price; increase in its return until it reaches 0.195. b. Fall in the demand; fall of the stock' s price; increase in its return until it reaches 0.075. c. Fall in the demand; fall of the stock' s price; fall in its return until it reaches 0.055. d. Increase in the demand; fall of the stock' s price; increase in its return until it reaches 0.075. 5) (Continuation) The risk premium of General Electric is 0.0944. Calculate General Electric' s beta. a. 1.18 b. 2.70 c. 2.27 d. 0.85