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The following are known about the 1 0 th decile of a market: Realized return in excess of the riskless rate: 1 6 % CAPM

The following are known about the 10th decile of a market:
Realized return in excess of the riskless rate: 16%
CAPM-estimated return in excess of the riskless rate: 11%
Beta: 1.5
Risk-free rate: 6%
a. Compute the size premium according to the methodology employed by Ibbotson Associates.
b. Compute the general equity risk premium for the market as a whole.
c. Compute the equity risk premium for the 10th decile, according to CAPM.
d. Compute the CAPM-estimated return for the 10th decile.
e. Given the risk-free rate of 6% and the general equity risk premium for the market as computed in question 9, what should beta for the 10th decile be for CAPM to be accurate?

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