Using CAPM to determine the expected rate of return for risky assets, consider the following example stocks, assuming that you have already compute the betas
. E(RI) = .15(.11) + .55(.18) + .30(.08)
Using CAPM to determine the expected rate of
Stock Beta
WND 0.80
STA 1.35
CTE 1.15
DUY 1.20
EVN -0.20
Stock WND the economy’s RFR to be 6 percent (0.06) and the expected return on the market portfolio (E(RM)) to be 8 percent (0.08)
Stock STA, the economy’s RFR to be 5percent (0.05) and the expected return on the market portfolio (E(RM)) to be 7 percent(0.07)
Assume that all the other stocks is as follows since we expect the economy’s RFR to be 5 percent (0.05) and the expected return on the market portfolio (E(RM)) to be 9 percent (0.09),
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