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Problem 24-7 Characteristic Line and Security Market Line You are given the following set of data: HISTORICAL RATES OF RETURN Year NYSE Stock X 1 -...


Problem 24-7
Characteristic Line and Security Market Line



You are given the following set of data:
HISTORICAL RATES OF RETURN
Year NYSE Stock X
1 - 26.5% - 16.0%
2 37.2 25.0
3 23.8 15.0
4 - 7.2 4.0
5 6.6 10.5
6 20.5 15.7
7 30.6 17.0

QUESTION:C: Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., rˆ x   =   rx  , rˆ M   =   r M  , and both σ x and b x in the future will equal their past values). Also assume that Stock X is in equilibrium - that is, it plots on the Security Market Line. What is the risk-free rate? Round your answer to two decimal places.
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