QUESTION 18

In the CAPM world, two securities, A and B, are priced efficiently, i.e., they fall on the SML. The expected return of A is 21%, and its beta is 1.8. The expected return of B is 13%, and its beta is 1. What is the slope of the SML?

	A.	0.1
	B.	0.12
	C.	0.08
	D.	0.2
	E.	0.15

QUESTION 17

Given an optimal risky portfolio with expected return of 14% and standard deviation of 30% and a risk free rate of 5%, what is the slope of the best feasible CAL?

	A.	0.45
	B.	0.14
	C.	0.36
	D.	0.30
	E.	0.40

QUESTION 16

The risk-free rate is 4 percent. The expected market rate of return is 11 percent. If you expect CAT with a beta of 0.8 to offer a rate of return of 8 percent, you should

	A.	sell short CAT because it is overpriced.
	B.	hold CAT because it is fairly priced.
	C.	buy CAT because it is overpriced.
	D.	sell stock short CAT because it is underpriced.
	E.	buy CAT because it is underpriced.