Question: You estimate that the expected return on a retailing firm s stock is 1 5 % . Based on historical data you estimate the market

You estimate that the expected return on a retailing firms stock is 15%. Based on historical data
you estimate the market risk premium to be 8.5% and the current risk-free rate is 5%.
a. If the expected return for this stock is described by the CAPM, what is its beta?
b. If the covariance between the stock and the market is 0.025, what is the standard
deviation of return on the market portfolio?

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