Suppose you observe the following situation: Security Beta Expected Return Pete Corp..............1.35........................0.80 Repete Co.............0.80.......................0.101 Assume these securities

Question:

Suppose you observe the following situation:

Security Beta Expected Return

Pete Corp..............1.35........................0.80

Repete Co.............0.80.......................0.101

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...