sol6 - FIN300 Managerial Finance Professor H. Wang...

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FIN300 Managerial Finance Professor H. Wang Solutions to Problem Set #6 1 According to the Capital Asset Pricing Model: E(r) = r f + β (EMRP) where E(r) = the expected return on the stock r f = the risk-free rate β = the stock’s beta EMRP = the expected market risk premium In this problem: r f = 0.06 β = 1.2 EMRP = 0.085 The expected return on Holup’s stock is: E(r) = r f + β (EMRP) = 0.06 + 1.2(0.085) = 0.162 The expected return on Holup’s stock is 16.2%. 2 According to the Capital Asset Pricing Model: E(r) = r f + β (EMRP) where E(r) = the expected return on the stock r f = the risk-free rate β = the stock’s beta EMRP
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This note was uploaded on 11/22/2010 for the course FINANCE 300 taught by Professor Xiao during the Spring '10 term at UChicago.

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sol6 - FIN300 Managerial Finance Professor H. Wang...

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