Suppose that the Treasury bill rate is 8% rather than 5%, as we assumed in Table 12.1, and the expected return on the market is 11%. Use the betas in that table to answer the following questions.

a. When you assume this higher risk-free interest rate, what makes sense for how you should modify your assumption about the rate of return on the market portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

b. Recalculate the expected return on the stocks in Table 12.1. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

c. Suppose now that you continued to assume that the expected return on the market remained at 11%. Now what would be the expected returns on each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) d. Ford offer a higher or lower expected return if the interest rate is 8% rather than 5%?

e. Walmart offer a higher or lower expected return if the interest rate is 8% rather than 5%?

Ticker Beta TABLE 12.1 Betas for selected common stocks, January 2013-December 2017 X 3.01 Company U.S. Steel Marathon Oil Amazon Disney 2.39 MRO AMZN DIS 1.47 1.39 F F Ford 1.26 BA 1.24 INTC 1.07 Boeing Intel GE Pfizer IBM 1.06 1.02 0.94 GE PFE IBM GOOG UNP 0.94 0.90 0.82 0.75 SBUX KO 0.70 Alphabet Union Pacific ExxonMobil Starbucks Coca-Cola McDonald's Campbell Soup Walmart Pacific Gas & Electric Newmont Mining 0.68 0.40 MCD CPB WMT PCG 0.37 0.15 NEM 0.10 Note: Betas are calculated from 5 years of monthly data