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Suppose you observed two risky stocks A and B, each of which is correctly priced based on the capital asset pricing model (CAPM). Stock A
Suppose you observed two risky stocks A and B, each of which is correctly priced based on the capital asset pricing model (CAPM). Stock A has a beta of 0.8 and an expected return of 12%, whereas stock B has a beta of 1.1 and an expected return of 16%.
Based on the CAPM, what is the market expected return?
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