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    Question

    If a stock's expected return is 18%, the risk-free rate

    is 6%, and the market return is 12%, what is the stock's beta according to the CAPM?
    A 1.2 Correct Answer Incorrect Answer
    B 1.4 Correct Answer Incorrect Answer
    C 1.6 Correct Answer Incorrect Answer
    D 2 Correct Answer Incorrect Answer
    E 2.2 Correct Answer Incorrect Answer

    Solution

    Using the CAPM formula and rearranging to solve for beta:   Expected return = Risk – Free Rate + (Beta x Market Risk Premium) 18% = 6% + (Beta x (12% - 6%)) = 2

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