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    Risk-free rate- expected rate of return for stocks

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    You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows:

    ABC - 0.7
    DEF - 0.9
    GHI - 1.3
    JKL - 1.9

    If the risk-free rate is 4.5% and the market rate is 8.5%, what is your expected rate of return of following stocks :

    a. ABC?
    b. DEF?
    c. GHI?
    d. JKL?
    e. If your portfolio is 20% in ABC, 30% in DEF, 30% in GHI, and 20% in JKL, what is your portfolio (weighted average) expected rate of return?

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    Solution Preview

    You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows:

    ABC: 0.7

    DEF: 0.9

    GHI: 1.3

    JKL: 1.9 ...

    Solution Summary

    The solution examines risk-free rates and the expected rate of return for stocks.

    $2.19

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