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The Management of Miracle Company Ltd is planning to launch two products as per the information below: Product A has a Beta of 1.5. Product

The Management of Miracle Company Ltd is planning to launch two products as per the information below:

Product A has a Beta of 1.5.

Product B has a Beta of 1.2

Government bonds are currently trading at 6%.

The average return than investors in the market can expect is 14%.

(a)Calculate the Cost of Equity using CAPM for each company.

(b)Advice the management of Miracle company Ltd how the capital asset pricing model can assist in making a better investment decision with respect to its new product launch your response should include systematic, business and financial risk.

A stock has the following probability distributions of expected returns. Calculate the risk per unit return.

PROBABILITY

Y%

0.2

15

0.1

2

0.2

(10)

0.4

35

0.1

20

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