The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Usingthe capital asset pricing model to answer the following questions.a) What is the required return on stock X with a beta of 1.5?b) If the market expects a return of 13.2% from stock Y, what is its beta?c) What is the beta return on a portfolio that is equally invested in stock X and stock Y?d) Discuss the differences between the capital market line and the security market line.

Risk free rate = 4% Market return = 12% Beta of stock X = 1.5

Answered: The Treasury bill rate is 4%, and the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model to answer the following questions. a) What is the required return on stock X with a beta of 1.5?