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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 th decile of a market:
Realized return in excess of the riskless rate:
CAPMestimated return in excess of the riskless rate:
Beta:
Riskfree rate:
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 th decile, according to CAPM.
d Compute the CAPMestimated return for the th decile.
e Given the riskfree rate of and the general equity risk premium for the market as computed in question what should beta for the th decile be for CAPM to be accurate?
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