Question C3 (20 marks) (a) Suppose you observe the following situation on two securities: Security Beta Expected Return Pete Corp. 0.8 0.12 Repete Corp. 1. 1 0 .16 Assume these two securities are correctly priced. Based on the CAPM, what is the return on the market? marks) (6) Discuss the usefulness (6 marks) of using CAPM. (c) What is the expected return and standard deviation for the following stock? (6 marks) State of Economy Recession Normal Boom Probability of State of Economy 0.10 0.60 0.30 Rate of Return if State Occurs -0.19 0.14 0.35 (a) You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.9 and the total portfolio is equally as risky as the market. What is the beta the second (4 marks) stock