Question
Cyclical Company is projected to have a return of 32% if the economy is very strong, while it is expected to have a return of
Cyclical Company is projected to have a return of 32% if the economy is very strong, while it is expected to have a return of 4% if the economy is weak. Counter Company is expected to have a return of 2% if the economy is very strong, while it is expected to have a return of 10% if the economy is very weak. The S&P 500 Index is expected to have a return of 13% in a very strong economy, while it is projected to have a return of -3% in a weak economy. Assume each scenario is equally likely. If the current T-Bill yield is 1.20% and the historic Market Risk Premium is 7.00%, what does CAPM predict for the expected return of Cyclical Company?
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