Question

You have been provided the following data on the securities ofthree firms, the market portfolio, and the risk-free asset:

a. Fill in the missing values in the table.(Leave no cells blank - be certain to enter 0 whereverrequired. Do not round intermediate calculations and round youranswers to 2 decimal places, e.g., 32.16.)

Security	ExpectedReturn	StandardDeviation	Correlation*	Beta
Firm A	.101	.40		.76
Firm B	.149		.59	1.31
Firm C	.169	.56	.44
The marketportfolio	.12	.20
The risk-freeasset	.05

*With the market portfolio.

b-1. According to the CAPM, what is the expectedreturn of Firm A's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

Expectedreturn ___________

b-2. What is your investment recommendation forsomeone with a well-diversified portfolio?

Buy

or

Sell

b-3. According to the CAPM, what is the expectedreturn of Firm B's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

Expected return _____________

b-4. What is your investment recommendation forsomeone with a well-diversified portfolio?

Buy

or

Sell

b-5. According to the CAPM, what is the expectedreturn of Firm C's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimalplaces, e.g., 32.16.)

Expectedreturn ____________

b-6. What is your investment recommendation forsomeone with a well-diversified portfolio?

Buy

or

Sell