Macroeconomics 20th Edition by Campbell McConnell ,Stanley Brue ,Sean Flynn

Exercise 26

Advanced Analysis Suppose that the equation for the SLM is Y = 0.05 + 0.04 X , where Y is the average expected rate of return, 0.05 is the vertical intercept, 0.04 is the slope, and X is the risk level as measured by beta. What is the risk-free interest rate for this SML? What is the average expected rate of return at a beta of 1.5? What is the value of beta at an average expected rate of return is 7 percent? LO5