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A stock has a beta of 1.4. The risk-free rate is 2% and the return on the market is 7%. Calculate the risk premium. What

A stock has a beta of 1.4. The risk-free rate is 2% and the return on the market is 7%.

  • Calculate the risk premium. What does this represent?
  • Calculate the expected return of this stock.
  • How would the expected return change if the Beta was lower? Explain why.

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