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This is question # 1 Consider the CAPM to hold and be true.. The risk-free rate is 6% and; The expected return on the market
This is question # 1 Consider the CAPM to hold and be true.. The risk-free rate is 6% and; The expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3? I know the answer to this is 21.60., I need help with the second portion of the question as seen below... In the stock in the first question, and considering the CAPM to hold and be true . The risk-free rate is 6% and; The expected return on the market is 18%. A stock "A" has a beta of 1.3 Stock "A" actually has a predicted return of 20%. . Construct an arbitrage portfolio to take advantage of the disequilibrium. (Note: This means the correct answer to the first question is not 20%!) Demonstrate how your portfolio gives you arbitrage profits (see Lecture C, or the practice problems after lecture C)
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