2. According to the capital-asset pricing model (CAPM), a security's expected (required) return is equal to th

Answer 1

According to CAPM,

E[Re] = Rf + b(E[Rm]-Rf)

where:

E[Re] = expected return on the security
Rf = return of the risk free security
E[Rm] = expected return of the market portfolio
b = beta of the security

The expected return of an asset is equal to the mean of the distribution of returns

Beta is equal to the covariance of excess returns of the asset with excess returns of the market divided by the variance of the excess returns of the market.

The excess return of an asset is equal to the return minus the return of the risk free asset.