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    CAPM and Expected Return Problem

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    CAPM and Expected Return. 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 percent. Use a 9 percent risk premium for the market portfolio.

    Company / Beta:

    Cisco 2.03
    Citigroup 1.36
    Merck .40
    Walt Disney .84

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    Solution Preview

    We use the CAPM formulea; Expected return = Risk Free rate + Beta* ...

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    This solution helps with a problem regarding CAPM and expected return.