Grace Corporation is considering the following investments. The current rate on Treasury bills is 0.5 percent and the expected return for the market is 10.5 percent.

Stock	Beta
K	1.16
G	1.34
B	0.82
U	0.99

a.Using the CAPM, what rates of return should Grace require for each individual security?

b.How would your evaluation of the expected rates of return for Grace change if the risk-free rate were to rise to 2 percent and the market risk premium were to be only 9.5 percent?

c.Which market risk premium scenario (from part a or b) best fits a recessionary environment? A period of economic expansion? Explain your response.

a.The expected rate of return for security K, which has a beta of 1.16, is what%.

The expected rate of return for security G, which has a beta of 1.34, is what %.

The expected rate of return for security B, which has a beta of 0.82, is what%.

The expected rate of return for security U, which has a beta of 0.99, is what %.

b.If the risk-free rate were to rise to 2% and the market risk premium were to be only 9.5%, the expected rate of return for security K is

what%