Suppose that all the unrealistic assumptions of the CAPM are true (the CAPM is valid)!!! The market portfolio has an expected return equal to 15% and the risk free rate is 5%. We are mainly interested in 2 securities in the market; stocks A and B. The beta of stock A is 1.8 and the expected return of stock B is 10%.

1. Estimate the expected return of stock A.

2. Estimate the beta of stock B.

3. Estimate the expected return of the optimal risky portfolio.

4. Estimate the alpha of stock A.

5. Estimate the expected return and the beta of an equally weighted portfolio Z consisting of stocks A and B.

6. Estimate the alpha of portfolio Z.