Answer Happy

Question #6: CAPM (14 Points] Use the Figure below to answer Parts (a)-(e) E(1) SML 0.084 0.021 1.18 Beta (B) (a) What is the risk-free rate (1? No explanation is required. [2 Points] (b) What is the expected return of the market portfolio? No explanation is required. [2 Points] (c) What is the expected return of an asset with a beta of 1.18? [3 Points] Page 3 of 4 Use the following scenario to answer Part (d) Suppose that the current price for a share of Six Flags (SIX) stock is at $42.58. The stock is expected to pay $2.14 in dividends next year and you anticipate that you will be able to sell the stock for $45 next year. Assume that Ers) = 0.09, the risk-free rate (te) = 0.036 and SIX has a beta (B)=2.42. (d) Is SIX stock overpriced or underpriced at its current price. You must justify your answer. (Hint: Find the required rate of return of SIX stock and then compare it to the 1 Year HPR of SIX stock] [7 Points]