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    Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Solomon Inc.stock has a beta of 1.3.Assume the capital-asset-pricing model holds.

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    Ross chapter 10, Question 10.31 Modified
    10.31 Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Solomon Inc.stock has a beta of 1.3.Assume the capital-asset-pricing model holds.

    a. What is the expected return on Solomon's stock?
    b. If the risk-free rate decreases to 3.7 percent, what is the expected return on Solomon's stock?

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    Solution Preview

    Hello!
    Here are your answers.

    a. The CAPM equation states that:
    Rs = Rf + Beta*(Rm - Rf)

    where
    Rs is the expected return on the stock
    Rf is ...

    Solution Summary

    The formula is given and used to solve. No references.

    $2.19

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