The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 5%. Use a 9% risk premium for the market portfolio.
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CAPM model says that the return to investors (and to the corporation, Rc) has to be equal to:
? the risk-free rate
? PLUS a premium for stocks as a whole that is higher than the risk-free rate. This market return premium is (rM - rf)
? And the ...
The solution lays out the parameters and explanation, then solves the four problems.