Consider an investment portfolio that consists of five different stocks, with the amount invested in each asset shown below. Assume the risk-free rate is 3% and the market risk premium is 7%. Use this information to answer the following questions.

Portfolio Stocks/Weights Beta

2nd National Bank 15%. 0.5

Chesapeake Energy 20%. 0.6

Pentair 30% 0.9

Pegasus 20% 0.6

Sodastream 15% 1.6

Total 100%

a. Compute the expected return for each stock using the CAPM and assuming that the stocks are all fairly priced.

b. Compute the portfolio beta and the expected return on the portfolio.