Here are data on two companies. The T-bill rate is 4.6% and the market risk premium is 8.9%.
Company $1 Discount Store Everything $5
Forecast return 15 % 14 %
Standard deviation of returns 22 % 24 %
Beta 1.4 1.0
Required:
What would be the fair return for each company, according to the capital asset pricing model (CAPM) ?
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