Example: Suppose the risk-free rate is 2%, the expected return on the market is 9% and you have calculated the beta of your portfolio to be 2. What is the expected return on your portfolio?
Why would you prefer to hold the market return that has a beta of 1 instead of a single stock that has a beta of 1?
More than 75% of CFOs use the CAPM in estimating cost of capital (which is the same as expected returns). If the CAPM doesn't work, why would they use it?
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