1. What must be the beta of a portfolio with E(rP)=18%, if rf=6% and E(rM)=14% ? 2- Are the following true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile securities. c. You can construct a portfolio with beta of 75 by investing. 75 of the investment budgets in T-bills and the remainder in the market portfolio. 3. What is the expected rate of return for a stock that has a beta of 1.0 if the expected return on the market is 15% ? a. 15%. b. More than 15%. c. Cannot be determined without the risk-free rate. Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the market return is equally likely to be 5% or 25% ? c. If the T-bill rate is 6% and the market retum is equally likely to be 5% or 25%, draw the SMI for this economy. d. Plot the two securities on the SMI graph. What are the aiphas of each? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock? 5- assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A share of stock sells for $50 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year