Question: 1) A stock has an expected return of 0.09, its beta is 1.63, and the expected return on the market is 0.07. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123.
2) You own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 1.05 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Hint: Remember that the market has a Beta=1; also remember that equally invested means that each asset has the same weight- since there are 3 assets, each asset's weight is 1/3 or 0.3333). Enter the answer with 4 decimals (e.g. 1.1234)