Question: Part A: Under CAPM, General Electric stock has an expected return of 15.7%, given its beta of 1.1 and a risk-free rate of 4.9%. If the market risk premium drops by 150 basis points, what would be the new expected rate of return for GE stock? (Show your answer in decimal for, e.g., 12.34% would be entered as 0.1234)
Part B: The expected return on the entire stock market is 14% this year. The required rate of return on ABC stock is 12.7%. US Treasury securities are expected to earn 4.4%. Using the assumptions of the capital asset pricing model, what is ABC's beta? (Show your answer to two decimal places, e.g., 12.34)
Part C: If the market risk premium is 8 percent and the risk-free rate is 3.9, what is the expected rate of return for a stock with a beta of 0.58 under the Capital Asset Pricing Model (CAPM)? (show your answer in decimal form to four places)
Part D: ABC has a beta of 1.61. The expected return for the S&P 500 stock index is 14.3 percent and U.S. Treasuries are expected to yield 3.4 percent. Based on the Capital Asset Pricing Model (CAPM), what is ABC's expected rate of return? (show your answer in decimal form to four places)
Part E: The rate on US Treasury securities is 2.1% and the expected return on the S&P 500 stock market index is 17.6%. Under the capital asset pricing model, what would be the expected return on a stock with a beta of 2.1? (Show your answer as a decimal to three places, e.g., if the answer is 12.3% input 0.123)