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    CAPM

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    Q2:
    In a small economy the market portfolio is comprised of the following three companies:

    Company Shares on Issue Price per share Expected Return
    A 200,000 $5.00 8%
    B 250,000 $4.00 12%
    C 500,000 $2.50 16%

    If the capital asset pricing model applies in this market and the risk-free rate is 6%, what is the beta of company C?

    Q3:
    What is the Beta of an Asset if it is correctly priced by the CAPM and is yielding an expected return of 18% when the risk-free rate is 4% and the expected market return is 12%?

    © BrainMass Inc. brainmass.com June 4, 2020, 1:28 am ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/finance-compute-beta-using-capm-risk-free-rate-402288

    Solution Preview

    See attached Excel file.

    Q2:
    Expected Return = Risk Free Rate + Beta *(Market Rate of Return - Risk Free ...

    Solution Summary

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