2. If the market portfolio has a return E(RM) = 8% and a risk-free rate of return (Rf) = 4%, stock A has a beta of 2.

(1) Find A's beta and its equilibrium rate of return under the CAPM.

(2) Calculate equilibrium rate of return for the stock A.

(3) If A's current expected rate of return is 12%, is it in equilibrium, explain why it is in equilibrium, and explain what would happen if it is not in equilibrium. (Include a judgment about whether stock A is overvalued or undervalued.)