Given the following information, Rf = 0.06, E(RM ) = 0.12, M = 0.15, answer the following questions.

(a) What is the numerical value of the equilibrium risk premium (that is, the excess return on the market portfolio)?

(b) What is the equilibrium expected return on a risky asset with a of 1.2? With a of 0.6?

(c) Suppose a stock has a of 1.2. Could this stock have a return of 0.10 in a given year?

(d) What is the of a security with an equilibrium expected return of 0.03?

(e) Is it possible in equilibrium for the expected return on a risky security to be less

than the risk-free rate?