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6 November, 03:23

A stock has an expected return of 10.45 percent, its beta is. 93, and the risk-free rate is 3.6 percent. What must the expected return on the market be?

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  1. 6 November, 06:16
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    Expected market return will be 10.97%

    Explanation:

    CAPM is method to calculates the expected return value using beta of the investment risk free rate and market premium of that investment.

    According to CAPM

    Expected Return Rate = Risdt free rate + Beta (Market risk Premium)

    Expected Return Rate = Risdt free rate + Beta (Market Return - Risk free rate)

    10.45% = 3.6% + 0.93 (Market return - 3.6%)

    10.45 - 3.60 = 0.93 (Market return - 3.6%)

    6.85 / 0.93 = Market return - 3.6%

    7.37 + 3.60 = Market return

    Market Return = 10.97%
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