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8. Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Suppose rf = 2% and market rate = 12%.

8. Stock A has a beta of 1.20 and Stock B has a beta of 0.8. Suppose rf = 2% and market rate = 12%.

(a) According to the CAPM, what are the expected returns for each stock?

(b) Which stock is riskier? Explain.

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