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:

Cerebellum

A region of the brain that plays a significant role in motor control, and is also involved in some cognitive functions such as attention and language.

Temporal Lobe

A region of the brain located beneath the temples, involved in processing auditory information and memory.

Voluntary Motor Function

The conscious control over skeletal muscles, enabling movements such as walking and talking.

Memory

A cognitive function that involves the encoding, storing, and retrieving of information.