1. CAPM assumes investors have homogeneous expectations regarding the probability distribution of risk and return of the available securities. Explain, with the aid of diagrams, the implications of relaxing this assumption on CAPM. (10 marks)

b. The estimated factor sensitivities of Freedom Corporation to Fama-French factors and the risk premia associated with those factors are given in the following table:

	Factor Sensitivity	Risk Premium (%)
Market factor	1.8	2.8
Size factor	0.4	1.7
Value factor	-0.5	3.4

i. Based on the Fama-French model, calculate the required return for Freedom Corporation using these estimates. Assume that the Treasury bill rate is 3 percent. (4 marks)

ii. What do you know about Freedom Corporation based on its factor sensitivities? (6 marks)