There are two stocks.

- Stock A: beta  1.5, return of 19%

- Stock B: beta  1, return of 16%

i) If the T-Bill rate was 6% and the market return was 14%, which stock had a higher risk-adjusted return according to CAPM?

ii) If the T-Bill rate was 3% and the market return was 15%, which stock had a higher risk-adjusted return according to CAPM?

iii) In which market environment (i or ii) is a long-short strategy that buys one stock and sells another stock more profitable?

+ This is all data I have and I have extra information here, but I need a explain.

- expected return rate of stock A is 18%, B is 14% in situation.

- expected return rate of stock A is 21%, B is 15% in situation.

Question 2:

Given the following information:

Economy  Market   Stock

Good       20%     30%

Poor        -20%    -30%

i) What is the beta of the stock?

ii) If a good economy has a 75% chance of occurring and a poor economy has a 25% chance of occurring, what is the stock's expected return assuming the T-Bill rate is 4%.

+ This is all data I have and I have extra information here, but I need a explain.

- bata = 1.5

- market return = 10%

- stock's expected return = 13%

Question 3:

Stocks that trade infrequently typically have a positive CAPM alpha. 

i) Is this a sign of market inefficiency?

ii) If the positive alpha of these stocks is persistent, describe the type of investor who should overweight infrequently traded stocks.