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    Required Rate of Return - Formula

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    The market has an expected return of 10% and the risk-free rate is 4%.
    Based on the security market line implied by this information,
    which of the following securities are correctly priced and which are over/underpriced?

    Beta Actual Return

    Stock 1 0.60 7.00%
    Stock 2 1.00 11.00%
    Stock 3 1.30 12.00%
    Stock 4 1.70 19.00%

    © BrainMass Inc. brainmass.com June 3, 2020, 11:58 pm ad1c9bdddf

    Solution Preview

    Required return = risk free rate + Beta* (Market rate - risk free rate)

    Stock ...

    Solution Summary

    The solution computes Required Rate of Return by given appropriate formula.