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    Investors expect the market rate of return this year to be 14 percent. A stock with a beta of .8 has an expected rate of return of 12 percent. If the market return this year turns out to be 10 percent, what is your best guess as to the rate of return on the stock?

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    Solution Preview

    First we calculate the risk free rate:
    Rate of Return on Stock = ...

    Solution Summary

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