4. A stock has a beta of 1.2. The risk-free rate is 1%. Assume that the CAPM holds. a. What is the expected return for the stock if the expected return on the market is 11%? b. What is the expected return for the stock if the expected market risk premium is 11%? 5. You are asked to calculate the cost of equity for a company's equity by using the CAPM. a. What do you need in order to make this calculation? Check all that apply: The variance of the market return The yield-to-maturity of the corporate bonds The risk-free rate over the investment horizon The covariance of the equity return with the market return An estimate for the equity risk premium 6. The CAPM is now the most widely used method for estimating the cost of equity. What does the author of your book say about the application of the CAPM? a. The CAPM produces accurate estimates of the cost of equity for a wide range of inputs One must use very detailed and up-to-date estimates of beta to ensure the accuracy of the CAPM There is little empirical evidence that the CAPM holds at all. 7. a. The promised return on a risky (.e. default risk) bond the expected return on a bond when held to maturity. is either higher or lower, but never the same as O is the same as O is always higher than is always lower than