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    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?

    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%?

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    Solution Preview

    See attached Excel file.

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

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