Question One:

R(e) = 0.05 + 1.8*0.08
= 19.4%

Question 2:

Beta = 0.14/0.08 = 1.75

Question 3:

- The slope measures the risk premium – the additional return to shareholders for holding a risky asset.
- The intercept measures the return on a risk free asset i.e. a treasury bill

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