Assume the CAPM holds and the market is efficient. Given the following information about the true market portfolio and stock S:

State Probability Return (Market) Return (S)

1 0.2 0.25 0.4

2 0.5 0.1 -0.085

3 0.3 -0.05 0.12

1. You are given enough information to determine the beta of S. (True / False)

2. Calculate the expected rate of return on the market portfolio and the expected return on stock S.

3. It turns out that stock S has a beta of about 0.7. Find the risk-free rate of return.