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    Determining the CAPM: what is the Risk-free rate

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    A stock has an expected return of 20% and a beta of 1.5, and the expected return on the market is 15%. What must the risk-free rate be?

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    Solution Preview

    Keep in mind the calculation for a stock's expected return. The Expected return (20%) is essentially equal to the market's risk free rate (unknown in this case) ...

    Solution Summary

    The solution explains the computation of the answer of the risk-free rate.