3. Consider the following four stocks. The risk-free rate is 2%, the expected return on the market portfolio is 7.5%, and the volatility on the market portfolio is 15%. The expected dividend payment and expected share prices are both at the end of the year. Stock Beta KLM British Airways Air Canada Lufthansa 1.50 1.15 0.67 0.50 Volatility Expected dividend 35% $2.50 50% $0.75 40% $0 25% $1.25 Expected Share Price $36.50 $54.00 $20.00 $77.00 a. (4) According to the CAPM, what is the expected rate of return for each stock? Write your answers as a percentage and round at two decimals. b. (4) What should be today's price be for each stock, assuming that the CAPM is correct? C. (5) Assume that Air Canada's stock price today is lower than what you found at 3b. Assuming that the CAPM is correct, what can you say about Air Canada's stock price? Be as specific as you can. d. (7) Suppose that the correlation between the returns of KLM and British Airways is 0.3. What would be the expected return and volatility of a portfolio with only these two stocks that has the lowest variance? Explain briefly under which conditions you should invest in this portfolio. Round your answers at two decimals