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    Capital Asset Pricing Model

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    Assume that Rf = 5 and Km=10.5 percent. Compute Kj for the following betas, using an increase in interest rates changes Rf to 6.0 percent, and the market risk premium (Km-Rf) changes to 7.0 percent. Compute Kj for the three betas of 0.6, 1.3 and 1.9

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    Solution Preview

    Please find my response below.

    1. Rf = 5%; Km = 10.5%, Risk Premium = 10.5-5=5.5%
    For ...

    Solution Summary

    The solution calculates the cost of capital using CAPM. The calculations are shown in the response and are very easy to understand. Overall, a great response.