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5. Given the Beta of two companies: A is 1.3 and Z is 1.0. The T-bill rate is 5.2% and the market risk premium is 8.0%. Calculate the expected returns of companies A and Z. 6. What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 18%? Hint: Think about the denition of beta 21.) 18% b.) More than 18% 0.) Cannot be determined without the risk-free rate 7. What must be the beta of a portfolio with E(r1,) = 14.60%, if 1",. = 5% and E(rM) = 13%? 8. Consider the following table, which gives a security analyst's expected return on two stocks for two particular market returns: So, if the market returns 8% in one possible scenario then Market Return Aggressive Stock Defensive Stock 8 % 3 .9 % 5.7 % 20 30 14 a.) What are the betas of the two stocks (aggressive stock and defensive stock)? b.) What is the expected rate of return on each stock if the market return is equally likely to be 8% or 20%? c.) If the Tbill rate is 8%, and the market return is equally likely to be 8% or 20%, What are the alphas of the two stocks? 9. Calculate the Sharpe ratios for the market portfolio and portfolio A. a.) Standard Portfolio Expected Return Deviation Riskfree 7 % 0 % Market 12.2 3 l A 11.0 20 Use the equation for the Sharpe Ratio: b.) If the simple CAPM is valid, is the above situation possible