Assume the risk-free rate is 8% and the expected rate of return on the market is 18% use SML on the simple (one factor) CAPM.

a. A stock has an expected return of 6%. What is its beta?

Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first adviser was 1.5, while that of the second was 1.

1. Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)?
2. If the T-bill rate were 6% on the market return during the period were 14%, which adviser would be the superior stock selector?
3. What is the T-bill rate was 3% of the market return was 15%?