2. What is the risk-free rate if the overall stock market (rM) is 12.6% and the market risk premium is 8.4%? What is the required rate of return on a stock with a beta of 1.28? (4 points)

3. What is the required rate of return on a stock with a beta of 2.3 if the risk-free rate is 4.8% and the expected return on the market is 11.4%? (3 points)

4. Suppose rRF = 5%, rM = 10.6%, and bk=1.24.

a) Find the required rate of return on stock k (rk)

b) If rRF increases to 7% and the slope of the SML remains constant. How would this affect rM and rk? (i.e., show the value of rM and rk after the change)

c) If rRF remains at 5% but rM falls to 9.2%. The slope of the SML does not remain constant. How would these changes affect rk? (i.e. show the new rk) (6 points)