SML Questions

Q1. You are given the following information: (a)A stock with a beta of 0 has an expected return of 6% (b)A portfolio made up of 50% invested at the risk free rate and 50% invested in the market portfolio has an expected return of 9%. What is the expected return of the market portfolio? Q2: Securities I and J lie on the security market line: I: Expected return 14%, Beta 1 J: Expected return 18%, Beta 1.5 Assume the CAPM holds. I.What is the risk free rate of return and the risk premium on the market portfolio? II.Security K has an expected return of 24% and a Beta of 1.8. What is likely to happen to the return and price of security K? Explain your answer.