finance question, use word doc. thx!!!!!!!!!

Homework #7 (CAPM and Capital Budgeting) If a stock's beta is equal to 0.75, then a decrease in the risk-free rate will be more likely to reduce: (A) the market risk premium. (B) the stock's risk premium. (C) the stock's beta. (D) the stock's expected return. [Hint: take a look at the CAPM formula E(r) rf [E(rm )-rf ] The basic tenet of the CAPM is that a stock's expected risk premium should be: (A) greater than the expected market return. (B) proportionate to the stock's beta. (C) greater than the risk-free rate of return. If the market portfolio is expected to offer returns of 16%, then what can be said about a portfolio expected to return 13% according to the CAPM model? (A) It plots below the security market line. (B) Part of the portfolio is invested in Treasury bills. (C) The portfolio is not diversified. (D) The portfolio's beta is less than 1.0. What happens to expected portfolio return if the portfolio beta increases from 1.0 to 1.5, the risk-free rate decreases from 5% to 4%, and the market risk premium increases from 8% to 9%? Financial managers of BECN firm plan to issue a stock with a $5 annual year-end dividend that will constantly grow at a growth rate g equal to 3%. If BECN firm has a beta 2.0, T-bills rate (i.e., riskfree rate) is 2%, and the market return is 5%. What price should the stock be sold at? What is the beta of a stock with an expected return of 12% if Treasury bills yield 6% and the market risk premium is 8%? [Note: The market risk premium is defined as the difference between market return and riskfree rate (i.e., ( rm - rf ) in CAPM formula) ] Calculate the expected rate of return for the following portfolio, based on a Treasury bill yield of 4% and an expected market return of 13%: [Challenging question] There are 3 assets on the markets. The following table provides the returns of these assets and their beta information. Based on the information available, please find the Beta for asset 3. Asset 1 2 3 E(r) 2% 10% 14% Beta 0 1.0 ? [Challenging question] Suppose you observe the following situation: Stock Beta Expected Stock Return A 1.5 25% B 0.5 10% Assume these securities are correctly priced (i.e., the CAPM model can be correctly applied to estimate their expected returns). Based on the CAPM, what is the expected return on the market ( rM )? What is the risk-free rate of return ( rf )