We are considering a stock for investment. The beta of the stock is 1.30 & the average return on the market index is 14%. The t-bond rate is 3%.

a.Calculate the expected return from the stock using the CAPM. (3 points)

b.Describe briefly the two types of risk as defined by the CAPM. (4 points)

c.If your expected return from the investment is 15%, should you invest in this stock? Explain your decision briefly. (3 points)