Question 2 Suppose the yield on short -term government securities (perceived to be risk-free) is about 4% and the expected return by the market for a portfolio with a beta of 1 is 12%. Using the CAPM...

Help with sub question d and e

Extracted text: Question 2 Suppose the yield on short -term government securities (perceived to be risk-free) is about 4% and the expected return by the market for a portfolio with a beta of 1 is 12%. Using the CAPM a. What is the expected return on the market portfolio b. What would be the expected return on a zero-beta stock? c. Suppose you consider buying a share of stock at K40. The stock is expected to pay a dividend of K3 next year and to sell then for K41. The stock risk has been evaluated at Beta - -0.5. Is the stock overpriced or Under-priced? (show your workings) d. If the expected rates of return on Portfolio A and B are 11% and 14% respectively and the Beta of A is o.8 while that of B is 1.5. The treasury bill is at 6%, while the expected return of the S&P500 index is 12%. The standard deviation of Portfolio A is 10% annually while that of B is 3196 and that of the Index is 20%. If you currently hold a market index portfolio, would you choose to add either of these portfolios to your holdings? Explain. e. Suppose shareholder equity invested in a utility is USs10omillion and the equity beta is o.6. if the treasury bill rate is 6% and the market risk premium is 8%, what would be the expected annual profit by the Utility is the Utility. (note: Regulators allow utility firms to set prices at a level expected to generate profits using the CAPM)