Instruction: Choose the best answer. CAPM: E(Ri) = Rf + i * (E(Rm) Rf) The beta of a portfolio = the weighted average of individual securities betas 1. Stocks A, B, and C have betas of 1.5, 0.4, and 0.9 respectively. What is the beta of a portfolio that invests 30% in stock A, 50% in stock B, and 20% in stock C?

A) 0.830

B) 0.933

C) 1.000

D) 1.125 2. Consider the CAPM. The risk-free rate is 6% and the expected return on the market is 16%. What is the expected return on a stock with a beta of 1.2?

A) 6%

B) 12%

C) 18%

D) 19.2%

E) 25.2% 3. Consider the CAPM. The risk-free rate is 5% and the market risk premium is 10%. What is the beta on a stock with an expected return of 12%?

A) 0.5

B) 0.7

C) 1.2

D) 1.4 4. Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is the risk-free rate?

A) 2%

B) 6%

C) 8%

D) 12% 5. Consider a portfolio that invests equally in the market portfolio and the risk-free asset. What is the beta of this portfolio? A) -1

B) -0.5

C) 0

D) 0.5

E) 1