Assume the expected return to the market is 15% and the risk-free rate is 5%.

a. What is the expected return on an asset with Beta=1.5? 2 points

b. What is the risk premium on an asset with Beta=0.7? 2 points

c. Through your fundamental analysis, you have identified a stock that has an expected return of 16% with a Beta of 1.3. Is this stock over-, under-, or fairly priced? 2 points

d. Would an investor be willing to purchase an asset with a beta of -0.5 and an expected return of 0%? 2 points