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4 March, 21:45

A stock has an expected return of 11.9 percent, its beta is. 94, and the risk-free rate is 5.95 percent. What must the expected return on the market be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) Market expected return %

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  1. 4 March, 22:53
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    The market expected return is 12.28%

    Explanation:

    According Miller and Modgliani Capital Asset Pricing Model, the expected return on a stock is given by the formula below:

    Ke=Rf+Beta (Market expected return-Rf)

    Rf is the risk free-rate of return

    Ke=11.9%

    Beta=0.94

    risk-free rate of return=5.95%

    11.9%=5.95%+0.94 (MER-5.95%)

    11.9%=5.95%+0.94MER-5.593 %

    11.9%=0.357 %+0.94MER

    11,9%-0.357%=0.94MER

    11.543 %=0.94MER

    MER=11.543%/0.94

    MER=12.28%

    The market expected rate having Miller and Modgiliani CAPM formula is 12.28%
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