1. The market portfolio (M) has the expected rate of return E(rM) = 0.12. Security A is traded in the market. We know that E(rA) = 0.17 and A = 1.5. (a) What is the rate of return of the riskfree asset (rf )? (b) Security B is also traded in the market. B = 0.8. Then what is "fair" expected rate of return of security B according to the CAPM? (c) Security C is a third security traded in the market. C = 0.6, and from the market price, investors calculate E(rC) = 0.1. Is C overpriced or underpriced? What is C?

please show all the calculations