Suppose the market portfolio is equally likely to increase by 40% or decrease by 2%. The risk-free interest rate is 6%.

Use the beta of a firm that goes up on average by 19% when the market goes down and goes down by 3% when the market goes up to estimate the expected return of its stock. How does this compare with the stock's actual expected return?

The beta of the stock is -0.52.

1) The expected return of the stock is ..... %

2) Does the CAPM hold in this place?