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:

Controlling Others

Exercising influence or authority over individuals to direct their behavior or decisions, often disregarding their autonomy or preferences.

Leadership

The act of guiding or influencing a group towards achieving its goals through direction, motivation, and implementing strategies.

Power

The ability or capacity to direct or influence the behavior of others or the course of events, widely studied in social and political sciences.

Referent Power

A form of influence that stems from the charismatic qualities or the respect and admiration one commands from others.