Homework Answers
Expected return = Risk-free rate + Beta(Market return - Risk-free rate)
Expected return = 0.06 + 0.756(0.125 - 0.06)
Expected return = 0.1091 or 10.91%
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A stock has a beta of 0.8. Using the Capital Asset Pricing Model what is the expected return of the stock if the risk-free rate is 4% and the expected risk premium on the market is 8%?
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