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Expected Return

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Suppose the expected return on the market portfolio is 13.8 %and the risk free rate is 6.4%. Solomon Inc. stock has a beta of 1.2. 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 3.5%, what is the expected return on Solomon's stock?

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Solution Summary

The solution explains how to calculate the expected return on a stock using CAPM equation

Solution Preview

The Capital Asset Pricing Model gives the expected return on a stock as per the equation below :

Expected Return on Stock = Risk Free ...

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