Assume the risk-free rate is 2% (rf = 2%), the expected return on the market portfolio is 6% (rM = 6%) and the standard deviation of the return on the market portfolio is 15% (σM = 15%). Assume the CAPM holds. A stock with a beta of 1 has a return standard deviation (volatility) of 30%.

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3 Risk Free Return 4 Expected Market return 12 Standard Deviation of Rteurn on market 16 CAPM Model Expected Return Risk Free return Beta Market return Risk free return i If Beta 10 Then Expected Retu... View the full answer