Write down the CAPM formula and solve E(ri) = rF + [E(rM) rF] . i =
Question:
Write down the CAPM formula and solve E(˜ri) = rF
+ [E(˜rM) − rF] . βi
= 4% + (7% − 4%) . βi
= 5%.
Therefore, βi
= 1/3. Note that we are ignoring the promised rate of return.
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