a) Explain the Capital Asset Pricing Model and discuss its assumptions.

b) Assume the risk free rate is 5 per cent and the market portfolio expected return is 8 per cent. You are examining the following three investment opportunities on the market:

Portfolio	Beta
A	0.8
B	1
C	1.3

1) Calculate for each of the three portfolios the expected return consistent with the capital asset pricing model.

2) Show graphically the expected portfolio returns in (a).

3) Indicate on the graph what would happen to the capital market line if the expected return on the market portfolio were 10 percent. And make the appropriate calculations.