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The common stock of Q Company Inc has a beta coefficient () of 1.20. The market expected return in the respective industry in general is
The common stock of Q Company Inc has a beta coefficient () of 1.20. The market expected return in the respective industry in general is 0.18 (18 %). Also, the risk free rate in the market is 0.04 (4 %).
Required:
- Calculate the Expected Return on the stock of Q Company, using Capital Asset Pricing (CAPM) equation formula.
- Please define and explain (also you may wish to explain by using the security market line) the importance of each parameter (component) of the CAPM in the formula.
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