1. Use the following information to answer the questions. Security Beta Standard Deviation Expected return S&P 500 1.0 20% 8.0% Risk-free security 0.0 0% 4.0% Stock A 0.6 15% (6.4 % Stock B (2) 30% 12.0% Stock C 1.2 25% (8.8% 1) Figure out the market risk premium using S&P 500 and Risk-free security. (10points) Market return - Risk free return = MRP 8.0% - 4.0% = 4.0% 2) Figure out the expected return for Stock A using CAPM. (15points) Risk free rate + beta* (market risk premium) = Expected return for Stock A 4.0% + 0.6% * 4.0% = 6.4% 3) Figure out the beta for Stock B using CAPM. (15points) (Expected return of Stock B - Risk free rate)/ Market Risk Premium (12% - 4%)/ 4% = 2 5) You form a complete portfolio by investing $6,000 in S&P 500 and $4,000 in the risk- free security. Given the information about S&P 500 and the risk-free security on the table, figure out the following. i) Figure out the standard deviation of the complete portfolio. (15points) ii) Figure out the slope of the Capital Allocation Line (CAL). (25points) 1. Use the following information to answer the questions. Security Beta Standard Deviation Expected return S&P 500 1.0 20% 8.0% Risk-free security 0.0 0% 4.0% Stock A 0.6 15% (6.4 % Stock B (2) 30% 12.0% Stock C 1.2 25% (8.8% 1) Figure out the market risk premium using S&P 500 and Risk-free security. (10points) Market return - Risk free return = MRP 8.0% - 4.0% = 4.0% 2) Figure out the expected return for Stock A using CAPM. (15points) Risk free rate + beta* (market risk premium) = Expected return for Stock A 4.0% + 0.6% * 4.0% = 6.4% 3) Figure out the beta for Stock B using CAPM. (15points) (Expected return of Stock B - Risk free rate)/ Market Risk Premium (12% - 4%)/ 4% = 2 5) You form a complete portfolio by investing $6,000 in S&P 500 and $4,000 in the risk- free security. Given the information about S&P 500 and the risk-free security on the table, figure out the following. i) Figure out the standard deviation of the complete portfolio. (15points) ii) Figure out the slope of the Capital Allocation Line (CAL). (25points)