14. (Using the CAPM to find expected returns)

a. Compute the expected rate of return for Acer common stock, which has a 1.5 beta. The risk-free rate is 4.5 percent, and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 10 percent. b. Why is the rate you computed the expected rate?

15. (Using the CAPM to find expected returns) Johnson Manufacturing, Inc., is consider

ing several investments. The rate on Treasury bills is currently 4 percent, and the expected return for the market portfolio is 10 percent. What should be the expected rate of return for each investment (using the CAPM)?