Suppose you observe the following situation: Security Beta ___Expected Return Pete Corp............... 1.21 .................. 1079 Pete Corp................

Question:

Suppose you observe the following situation:

Security ______Beta _________Expected Return

Pete Corp............... 1.21 .................. 1079

Pete Corp................ 83 .................... 0843

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...