The following data have been developed :

State Probability Market Return, R_m Return for the Firm, R_k

1 0.1 -0.15 -0.30

2 0.3 0.05 0.00

3 0.5 0.15 0.2

4 0.1 0.20 0.5

The risk-free rate is 3%. Calculate the following.

A. The expected market return

B. The variance of the market return

C. The expected return of the FTLQ Company

D. Cov (R_m, R_FTLQ)

E. Write an equation of the security market line (this will be an equation showing E(r) and beta relation).

F. What is the required rate of return (from CAPM) for the FTLQ Company? How does this compare with its expected return (from part (c) above)?