26. In the capital pricing model formula (CAPM) the market risk premium is a. The difference between the return on the market (or an average stock) and the risk-free rate b. The return on the market (or an average stock) c. The spread between Treasury bonds and junk bonds d. The historical average returns on large-company stocks e. The risk-free rate 27. You want to create a portfolio equally as risky as the market, and you have $500,000 to invest. Given that you wish to invest $75,000 in Stock A which has a Beta of.8, and to invest $100,000 in Stock B which has a Beta of 1.15, and if you can invest any amount in treasury bills, how much would you invest in Stock C, which has a beta of 1.40? a. $325,000 b. $275,445 c. $232,150 d. $132,350 e. $ 92,850 28. In problem 27 above, how much would be invested in treasury bills? a. $325,000 b. $275,445 c. $232,150 d. $132,350 e. $92,850 29. Stock A just paid a dividend of S2.00. Dividends are expected to grow at a rate of 8%. The risk-free rate is 4%, the return on the market is 11.5%, and the beta for stock A is 1.2. Using the CAPM for the investor required rate of return, and using the constant growth model, what should the stock price be? a. $18.78 b. $26.67 c. $28.80 d. $38.80 e. $43.20