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Suppose the market risk premium is 6.5% and also that the standard deviation of returns on the market portfolio is 0.27. Further assume that the
Suppose the market risk premium is 6.5% and also that the standard deviation of returns on the market portfolio is 0.27. Further assume that the correlation between the returns on ABC (Google) stock and returns on the market portfolio is 0.8, while the standard deviation of returns on ABC stock is 0.62. Finally assume that the risk-free rate is 2%. Under the CAPM, what is the expected (i.e. required) return on ABC stock? Answer should include four digits to the right of the decimal point.
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