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    C1. (Beta and required return) The riskless return is curren

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    C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated
    the contingent returns given here.
    a. Calculate the expected returns on the stock market and on Chicago Gear stock.
    b. What is Chicago Gear's beta?
    c. What is Chicago Gear's required return according to the CAPM?

    REALIZED RETURN

    State of the Market probability that State Occurs Stock Market Chicago Gear
    Stagnant 0.20 (10%) (15%)
    Slow growth 0.35 10 15
    Average growth 0.30 15 25
    Rapid growth 0.15 25 35

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    Solution Summary

    C1. (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated
    the contingent returns given here.

    $2.19

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