5.A stock has a CAPM expected return of 12%. Given a market return of 8% and a risk-free rate of 2%, calculate the CAMP beta of the stock?

6.Consider a two-factor APT. The two factors are M1 and M2. The risk-free rate is 5%. The risk premium for M1 (R_M1) = 8.71%. Portfolios A and B are well diversified. Given the data below, calculate the risk premium for M2 (i.e.,R_M2) and expected return for Portfolio B based on APT.

PortfolioBeta on M1Beta on M2APT-based E(r_P)

A1.51.7535%

B1.00.65?

(Hint: use the two-factor APT model: E(r_P) = r_f+ b_M1R_M1+ b_M2R_M2)