Calculate the expected return for each stock assuming the Capital Asset Pricing Model (CAPM) is valid, and explain if they are correctly priced. Show your calculations.

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Consider the following information in Table 3 for stocks A and B. Table 3 Forecasted Return (%) Standard Deviation (%) Stock A 11% B 13% The risk-free rate of return is 5%, the expected rate of return on the market index is 11%, and the standard deviation of the market index returns is 15%. CAPM-beta 0.7 1.4 25% 20% Consider the following information in Table 3 for stocks A and B. Table 3 Forecasted Return (%) Standard Deviation (%) Stock A 11% B 13% The risk-free rate of return is 5%, the expected rate of return on the market index is 11%, and the standard deviation of the market index returns is 15%. CAPM-beta 0.7 1.4 25% 20%

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To calculate the expected return using the Capital Asset Pricing Model CAPM you can use the followin... View the full answer