Question: using the formula CAPM e ( r i ) = r f + b ( e ( r m ) r f ) e(ri)= expected

  • using the formula CAPM e(ri)=rf+b(e(rm)rf) e(ri)= expected return rf= risk free rate b = beta e(rm)= expected market return
  1. A stock has an expected return of 13.6 percent, the risk free rate is 3.7 percent, and the market risk premium is 7.1 percent. What must the beta of this stock be?
  2. A stock has an expected return of 10.9 percent, its beta is 0.85, and the risk free rate is 4.6 percent. What must the expected return on the market be?
  3. A stock has an expected return of 12.5 percent and a beta of 1.15, and the expected return on the market is 11.5 percent. What must the risk free rate be?

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