Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) = 14%; βi = 1.0.b. Recalculate the required rate of return assuming βi is 1.8.25. a. Compute the expected rate of return on investment i given the followinginformation: the market risk premium is 5%; Rf = 6%; βi = 1.2.b. Compute E(RM)

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Asked Dec 8, 2019
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Compute the expected rate of return on investment i given the following
information: Rf = 8%; E(RM) = 14%; βi = 1.0.
b. Recalculate the required rate of return assuming βi is 1.8.
25. a. Compute the expected rate of return on investment i given the following
information: the market risk premium is 5%; Rf = 6%; βi = 1.2.
b. Compute E(RM)

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Expert Answer

Step 1

Expected rate of return is the minimum return which the investors would require for investing in a stock. Using Capital Asset Pricing Model, this value can be determined.

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E(R,) = R,+ß×(Ry – R,) =8% +1.0× (14%-8%) =8% + 6% =14%

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Step 2

Answer: Expected rate of return on investment i is 14.00%

Step 3

b) Expected rate of return on inve...

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E(R,) = R,+Bx(RM –R,) = 8%+1.8 ×(14% – 8%) = 8%+10.80% =18.80%

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