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What are the risk-free return and the expected return

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Question 1: Stock A has an expected return of 12% p.a. and a beta of 1.4. Stock B has an expected return of 9% p.a. and a beta of 0.8. What are the risk-free return and the expected return on the market portfolio, if both stocks are correctly priced by the CAPM?

Group of answer choices

Option 1: None of the other answers is correct

Option 2: Rf = 4% p.a. and E(Rm) = 9.71%

Option 3: Rf = 3% p.a. and E(Rm) = 9.43% p.a.

Option 4: Rf = 2% p.a. and E(Rm) = 9.14%

Option 5: Rf = 5% p.a. and E(Rm) = 10% p.a.

Reference no: EM132539531

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