Question

Asked Oct 29, 2019

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need help

Step 1

Under one factor model:

E(R) = Rf + Beta x Z where E(R) = expected return of a security, Rf = risk free rate, and Z = risk factor

Step 2

E(RA) = Rf + BetaA x Z

Hence, 14.4% = Rf + 1 x Z - Eqn (1)

E(RB) = Rf + BetaB x ...

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