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A stock has a beta of 1.14 and an expected return of 10.5 percent. A risk free asset currently early 2.4 percent.
a. What is the expected return on a portfolio that is equally invested in the two assets?
b. If a portfolio of the two assets has a beta of .92, what are the portfolio weights?
The text identifies three methods for estimating the cost of common stock from reinvested earnings (not newly issued stock): CAPM method, DCF method, and Bond-yield-plus-risk-premium method.
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