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3. Use CAPM to forecast the average daily expected returns for all selected shares. Assume an expected daily market return of 0.04% and a

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3. Use CAPM to forecast the average daily expected returns for all selected shares. Assume an expected daily market return of 0.04% and a daily risk free rate of 0.002%, and calculate the expected daily returns on your stocks based on your constructed betas. Based on the expected returns calculated, answer the following questions: (6 marks) a. which stock has highest/lowest expected return and explain this by the risk measures calculated in Q2; b. for the stock with highest expected and the stock lowest expected return, identify one business/financial risk (e.g., financial leverage, sensitivity of sales) for each stock that contributes to the amount the systematic risk involved. 2

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