Nikon Company's shares have an expected return of 15

Computation of the expected return on market:-

Nikon company's shares;

Expected return = Risk free rate + Beta * (Expected market return - Risk free rate)

15.5% = Risk free rate + 1.5 * (Expected market return - Risk free rate).............(i)

Alpha Company's shares;

13.4% = Risk free rate + 1.2 * (Expected market return - Risk free rate).............(ii)

Lets multiply the equation (i) by 4

15.5% = Risk free rate + 1.5 * (Expected market return - Risk free rate) * 4

62% = (4*Risk free rate) + 6 * (Expected market return - Risk free rate)..........(i)

Lets multiply the equation (i) by 5

13.4% = Risk free rate + 1.2 * (Expected market return - Risk free rate) * 5

67% = (5 * Risk free rate) + 6 *(Expected market return - Risk free rate)..........(ii)

Lets subtract the equation (i) from equation (ii) ;

67% - 62% = (5 Risk free rate - 4 Risk free rate) + (6 * (Expected market return - Risk free rate) - (6 * (Expected market return - Risk free rate))

5% = 1 * Risk free rate

Risk free rate = 5%

Lets put the value of risk free rate in equation (i) ;

Expected return = Risk free rate + Beta * (Expected market return - Risk free rate)

15.5% = 5% + 1.5 * (Expected market return - 5%)

(1.5 * Expected return) - 7.5% = 15.5% - 5%

1.5 * Expected market return = 10.5% + 7.5%

Expected market return = 18% / 1.5

= 12%