a) The expected rate of return on the market portfolio is 12.50% and the riskfree rate of return is 3.25%. The standard deviation of the market portfolio is 17.50%. What is the representative investors average degree of risk aversion? Note that the degree of risk aversion is shown as a number rather than a percentage.

b) Stock A has a beta of 1.95 and a standard deviation of return of 41%. Stock B has a beta of 3.75 and a standard deviation of return of 65%. Assume that you form a portfolio that is 60% invested in Stock A and 40% invested in Stock B. Using the information in question 13, according to CAPM, what is the expected rate of return on your portfolio?

c) Your forecasting model projects an expected return of 26.00% for Stock A and an expected return of 44.00% for Stock B. Using the information in questions a and b and your forecasted expected returns, what is your best estimate of the alpha of your portfolio when using CAPM to determine a fair level of expected return?

d) Using the data from problem c, according to CAPM, is your portfolio undervalued, overvalued, or fairly valued?