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Homework answers / question archive / A share has a beta of 1

A share has a beta of 1

Finance

A share has a beta of 1.4. The risk-free rate of return is 3.8% and the expected return on the market is 9.2%. What is the expected return from the share according to the CAPM?

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Computation of Expected Return from the Share according to the CAPM:

Expected Return = Risk-free Rate + Beta*(Expected Return on Market - Risk-free Rate)

= 3.8% + 1.4*(9.2%-3.8%)

= 3.8% + 1.4*5.4%

= 3.8% + 7.56%

Expected Return = 11.36%

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