Over the next year, expected return on the S&P 500 index (proxy for the optimal risky portfolio), the SMB portfolio, and the HML portfolio are 11%, 6%, and 3%; standard deviation of the returns on the S&P 500 is 27%; risk free return is 2%.
Assuming that the CAPM is the appropriate asset pricing model, you estimate Bargain Buster Stores’ stock beta to be 1.45. What is its expected return?
Summary: This question belongs to financial management and discuses about Bargain Buster Stores’ stock beta and to calculate expected return.
Total word count: 39
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