3. Are the following true or false? Explain. (LO 7-5) 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 bud- get in T-bills and the remainder in the market portfolio. 25. Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model: (LO 7-2) a a. What is the expected return on the market portfolio? b. What would be the expected return on a zero-beta stock? c. Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluated at = -.5. Is the stock overpriced or underpriced? 26. Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is .8 while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 Index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31%, and that of the index is 20%. (LO 7-2) a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain. b. If instead you could invest only in bills and one of these portfolios, which would you choose