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Expected return for stocki is given by: E[Rj] = R} + B. (E[RM - R;]). Stock 1 and Stock 2 have expected returns of 10%
Expected return for stocki is given by: E[Rj] = R} + B. (E[RM - R;]). Stock 1 and Stock 2 have expected returns of 10% and 15% with betas of 1 and 2, respectively - that is, E (Ri] = 10%, E[R2] = 15%. Bi1, and B2 = 2. What is the risk-free rate, Rf ? Note that R, and E (RM) are common to both stocks. 5% 3% 6% 0 4%
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