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Example 2: A stock has an expected return of 10 percent, a beta of 0.5 and the expected return on the market is 16%. What

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Example 2: A stock has an expected return of 10 percent, a beta of 0.5 and the expected return on the market is 16%. What must be the risk-free rate? What is the market risk premium? What is the stock risk premium? Draw the Security Market Line (Beta v.s. R.), show Rm, the stock market risk premium, stock risk premium Security Market Line 03 0.24 0.18 0.12 0.06 0 0.667 1 1.333 2

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