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Capital Asset Pricing Model to Find Expected Return

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1. The expected return on the stock market is 10% with a standard deviation of 27%. The risk-free rate is 3%. AB Corp. has covariance (COV) of 0.075 with the market return. The stock currently trades at $100 and is expected to increase to $114. What is the required return on the stock?

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Solution Summary

The solution describes the Capital Asset Pricing Model and how to apply it to obtain the answer to this question.

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