Assume the risk-free rate is 3.0% and the required return on the market portfolio is 12.0%.
1. Using these market conditions, write the equation (note that equations have at least one unkown variable in them) for the Security Market Line.
2. Show this equation graphically (Hint: Draw and label the security market line.)
3. What is the market risk premium under these conditions?
4. Under these conditions, what is the required return on a stock with a beta coefficient of 2.0?