x=3

1. The market portfolio has a return of 12 percent, and the risk-free rate is 3 percent. Use the capital asset pricing model to answer the following questions. [15] a. What is the risk premium on the market. Draw a security market line. [3] b. What is the required return on an investment with a beta of 1.x? [3] c. An investment project has a beta of 0.8x and offers an expected return on investment of 8.x percent. Will the project have a positive NPV? [3] d. If investors demand a return of 12.x percent from a stock, what is its beta? [3] e. If a stock with a beta of 2.x is offering a return of 13.5 + x percent, is the stock over-valued or under-valued? [3]