Question 1: Stocks with a beta of zero offer an expected rate of return of zero. TRUE/FALSE Question 2: The CAPM implies that investors require a higher return to hold highly volatile securities. TRUE/FALSE Question 3: You can construct a portfolio with beta of 75 by investing -75 of the investment budget in T-bills and the remainder in the market portfolio. TRUE/FALSE PART II Question 4: Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecast Return Standard Deviation of returns $1 Discount Store 12% 8% 1.5 Everything $5 | 11% 10% 1.0 Beta a) What would be the fair return for each company, according to the CAPM? b) Based on the fair return and according to the CAPM, is each firm properly priced? Question 5: Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of 6. Which of the following statements is most accurate? a) The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc. b) The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc. c) The stock of Kaskin, Inc., has more total risk than Quinn, Inc. Question 6: What must be the beta of a portfolio with E(rp) = 20%, if r = 5% and E(rm) = 15%