a. A large fire severely damages three major U.S. cities.
b. A substantial unexpected rise in the price of oil.
c. A major lawsuit is filed against one large publicly traded corporation.
a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset “i” is 10%, the Risk-Free Rate is 3%, and the Beta (b) for Asset “i” is 1.5.
b. Find the Risk-Free Rate given that the Expected Rate of Return on Asset “j” is 14%, the Expected Return on the Market Portfolio is 12%, and the Beta (b) for Asset “j” is 1.5.
c. What do you think the Beta of your portfolio would be if you owned half of all the stocks traded on the major exchanges? Explain.
3) What you think is the main ‘message’ of the Capital Asset Pricing Model to corporations and what is the main message of the CAPM to investors?