Given the following information from the performance of Apple, Amazon, S&P 500 index, and T-Bill from Oct. 216 to Oct. 2021, and the subsequent assumptions, answer the questions: 5-year average monthly return on Apple ( ER(Apple) ) 3.30% 5-year standard deviation of Apples monthly returns ( SD(Apple) ) 8.42% 5-year monthly beta of Apple 1.22 5-year average monthly return on Amazon ( ER(Amazon) ) 2.81% 5-year standard deviation of Amazons monthly returns ( SD(Amazon) ) 7.99% 5-year monthly beta of Amazon 1.16 5-year average monthly return on S&P 500 index ( ER(S&P 500) ) 1.34% 5-year standard deviation of S&P 500 indexs monthly returns ( SD(S&P 500) ) 4.42% 5-year average monthly return on T-Bill ( ER(T-Bill) ) 0.08% Assumption 1: Monthly risk-free rate (Rf) = ER(T-Bill) = 0.08% Assumption 2: Monthly expected return on the market = (RM) = ER(S&P 500) = 1.34% Assumption 3: Beta of S&P 500 index ((S&P 500)) = Market Beta = 1.00

3. Using CAPM formula, what is the required rate of monthly return on Apple? (6 points) Hint: Check the answer provided for question # 6 as a help.

6. For Verizon, 5-year monthly beta and 5-year average monthly return are 0.45 and 0.57%, respectively. Based on CAPM, what is the required rate of return on Verizon? RVerizon = Rf + Verizon (RM - Rf) where: Rf = ER(T-Bill) = 0.08% RM = ER(S&P 500) = 1.34% Verizon = 0.45 RVerizon = 0.08 % + 0.45 (1.34% - 0.08%) = 0.65% The monthly return that you can expect from investing in Verizon (0.57%, based on historical returns) is less than the monthly return required on Verizon (0.65%, based on CAPM). Therefore, the expected return does not cover the required return given Verizons level of riskiness. As such, capital asset pricing model (CAPM) suggests that Verizon is not a good investment option.