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1. (1 point) Assume that the expected returns of both stocks and efficient portfolios are...

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1. (1 point) Assume that the expected returns of both stocks and efficient portfolios are described by the Capital Asset Pricing Model (CAPM). The market risk premium rm -rf = 0.08 (per year), the risk-free interest rate rp=0.01 (per year), and the standard deviation of annual returns on the market portfolio is on=0.16. The table below displays the betas and standard deviations of four stocks. According to the CAPM, what are the expected returns of the four stocks? Standard deviation Beta 0.32 1.0 Expected return Stock 1 0.14 0.5 N 3 0.50 1.5 4 0.14 0.0

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