Suppose That the Risk-Free Rate Is 5% and the Market

question 39

Essay

Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%.Luther Industries has a volatility of 24% and a correlation with the market of .5.If you assume that the CAPM assumptions hold,then what is the expected return on Luther stock?

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Definitions:

Marasmus

A severe form of malnutrition characterized by energy deficiency, resulting in significant weight loss and muscle wasting.

Depigmentation

Depigmentation involves loss of skin color due to the absence or decrease of melanin, often visible in conditions such as vitiligo.

Dermatoses

A general term for any skin disease or disorder.

Allergens

Substances that can trigger an allergic reaction in sensitive individuals, ranging from pollen and pet dander to certain foods and chemicals.