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Here, portfolio A's required return is: 10 + .9 8 17.2%, which is still higher than 16%. A is overpriced with a negative alpha: A 1.2%. 12. Possible. The CML is the same as in problem 8. Portfolio A plots below the CML, as any asset is expected to. This situation is not inconsistent with the CAPM. 13. Since the stock's beta is equal to 1.2, its expected rate of return is 6 + 1.2(16 6) 18% E(r) .18 D1 + P1 P0 P0 6 + P1 50 50 P1 $53 14. Assume that the $1,0.

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