Suppose there is a risk free asset in the economy that gives a return of r = 3 p

Question

Suppose there is a risk free asset in the economy that gives a return of r = 3 percent, and that market returns are given by the following table: There are two available securities, call them A and B, with the following returns under the different market conditions: Find each security's beta using the data above. What is the predicted expected return on each security when using the CAPM? Draw the Security Market Line and plot each security. Does each security fall on the security market line? What can be inferred about each security's alpha ?

Explanation / Answer

Suppose there is a risk free asset in the economy that gives a return of r = 3 p

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