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11. What is the required rate of return of this investment using the CAPM formula? a. Risk free rate of 5 year treasury bills

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Answer #1

Answer:

Given

Risk free rate Rf=2.5%

Market Rate Rm=7.2%

If Beta B=1.6

So required rate of return R= Rf+B*(Rm-Rf)

R=2.5%+1.6*(7.2%-2.5%)=10.02%

If Beta B=0.6

So required rate of return R= Rf+B*(Rm-Rf)

R=2.5%+0.6*(7.2%-2.5%)=5.32%

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