Assume CAPM holds. We know expected return and beta of two stocks:

Stock A: $E[ra]=10\%$ and beta$\_$a $=1\mathrm{.}5$

Stock B: $E[rb]=5\%$ and beta$\_$b $=0\mathrm{.}5$

What would be the expected return of a stock that has a beta of $0\mathrm{.}9?$

$6\mathrm{.}5\%$

$7\%$

$7\mathrm{.}5\%$

$6\%$

Question $5$

Which of the following statements is false?

The CAPM follows from equilibrium conditions in a frictionless mean$-$variance economy with rational investors

According to CAPM, everyone should hold a mix of the market portfolio and the risk$-$free asset.

According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks.

According to CAPM, the expected return on a stock is a linear function of its beta.