Stock A has a beta of 1.2 and an expected return of 15.5%. Stock B has a beta of 0.5 and an expected return of 9.7%. If CAPM holds, what should the return of the risk-free asset be? Note, risk-free interest rates can be negative such as in Germany or Japan.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Stock A has a beta of 1.2 and an expected return of 15.5%. Stock B has a beta of 0.5 and an
expected return of 9.7%. If CAPM holds, what should the return of the risk-free asset be?
Note, risk-free interest rates can be negative such as in Germany or Japan.
Transcribed Image Text:Stock A has a beta of 1.2 and an expected return of 15.5%. Stock B has a beta of 0.5 and an expected return of 9.7%. If CAPM holds, what should the return of the risk-free asset be? Note, risk-free interest rates can be negative such as in Germany or Japan.
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