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Find out the expected return on the market


Problem:

Suppose you observe the following situation:

  • Security Beta Expected Return
  • Pete Corp. 1.3 0.23
  • Repete Corp. 0.6 0.13

Requirement:

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

Note: Provide thorough explanation of every question given in the problem.

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Accounting Basics: Find out the expected return on the market
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