Problem 12-11 CAPM and Expected Return (LO2) The risk-free rate is 6% and the expected rate of return on the market portfolio is 11% a. Calculate the required rate of return on a security with a beta of 138. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Required return % b. If the security is expected to return 13%. Is it overpriced or underpriced? Overpriced Underpriced Problem 12-17 CAPM and Expected Return (LO2) The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 8%. Use a 10% risk premium for the market portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Company Caterpillar Apple Johnson & Johnson Consolidated Edison Beta 1.77 1.41 0.60 0.32 Cost of Capital % % % % Problem 12-22 CAPM and Expected Return (LO2) If the expected rate of return on the market portfolio is 19% and T-bills yield 7%, what must be the beta of a stock that investors expect to return 16%? (Round your answer to 4 decimal places.) Beta of a stock Problem 12-24 CAPM and Expected Return (LO2) A mutual fund manager expects her portfolio to earn a rate of return of 11% this year. The beta of her portfolio is 0.5. The rate of return available on risk-free assets is 4% and you expect the rate of return on the market portfolio to be 10% What expected rate of return would you demand before you would be willing to invest in this mutual fund? (Do not round intermediate calculations. Enter your answer as a whole percent.) Expected rate of return Is this fund attractive to you? NO Yes Problem 12-27 CAPM (LO2) The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%. According to the capital asset pricing model a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.6? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.8 offers an expected return of 8.6%, does it have a positive or negative NPV? d. If the market expects a return of 11.0% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Market risk premium Return on investment % % b. c. NPV d. Beta