a) Min return = Rf + beta * (expectd return from mkt Rf) So min return = 8% + 0.6( 12% - 8%) = 10.

.4 % 12% - 8% = risk premium If it is the same or higher than your required rate of return, the CAPM suggests you should invest; if it is lower, you should not invest. Required RoR = 12% As min return = 10.4% . Dont Invest in A as it yields a lower RoR than the mkt

b) Beta measures the sensitivity of the asset to the market. Apply same formula as above! Min return = Rf + beta * (expectd return from mkt Rf) Here min return = 15% , Rf and return frm market is the same as A . so replace values in the formula 15 % = 8% + beta( 12% - 8%) Beta = 1.75 If stock market rise by 1 % then a stock with beta of 1.75 will rise by 1.75%.