Given the following information, Rf = .06, E(RM) = .12, M = .15,where E(RM) is expected market return and M is volatility of market return, answer the following questions.

1. (a) What is the numerical value of the market price of risk?

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

   a of .6?

3. (c) What is the of a security with an equilibrium expected return of .03?

4. (d) Is it possible in equilibrium for the expected return on a risky security to be less than the risk-free rate? Explain. (Hint: look at part (c))