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:

Lawrence Welk

An American musician, accordionist, bandleader, and television impresario known for hosting the long-running TV series "The Lawrence Welk Show".

Maximize Profits

The process by which a firm decides on the output level and price of goods or services to achieve the highest possible profit.

Senior Citizens

Older adults, typically those aged 65 and above, often regarded as being in the retirement phase of life.

Lawrence Welk

An American musician, accordionist, bandleader, and television impresario, known for hosting "The Lawrence Welk Show."