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What is the expected rate of return of stock

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    Assignment ID: FG133056744

    Consider three stocks

     

    Beta

    Standard deviation

    Dividend

    Stock price

    Q

    0,45

    35 %

    0,5

    45

    R

    1,45

    40 %

    0

    75

    S

    -0,2

    40 %

    1

    20

    Use a risk free rate of 2% and an expected market return of 9.5%. The standard deviation of the market returns is 18%. Assume that the next dividend will be paid after one year, at t= 1. 

    1. According to CAPM, what is the expected rate of return of each stock and What should today’s price be for each stock, assuming CAPM is correct? 

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