Question

QUESTION ONE A. You are presented with the following two stocks. Stock Beta (β) Expected Return...

QUESTION ONE A. You are presented with the following two stocks.

Stock Beta (β) Expected Return

A        1.4            25%

B        0.7            14%

Assuming that the Capital Asset Pricing Model (CAPM) assumptions hold true, calculate:

I. The return on the market.

II. The risk-free rate.

III. The risk premium for stock A.

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