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Sakin Plc. has a beta of 1.5. If the risk-free rate of return is 5% and the expected return on the market is 12% then, according to the CAPM, the expected return on Sakin stock should be:15.5% 9.15%10.5%23% 13%

Question

Sakin Plc. has a beta of 1.5. If the risk-free rate of return is 5% and the expected return on the market is 12% then, according to the CAPM, the expected return on Sakin stock should be:15.5% 9.15%10.5%23% 13%

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Solution

The Capital Asset Pricing Model (CAPM) is used to calculate the expected return on an investment given its beta, the risk-free rate, and the expected market return. The formula is:

Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)

Let's plug in the given values:

Expected Return = 5% + 1.5 * (12% - 5%)

First, calculate the value inside the parentheses:

12% - 5% = 7%

Then multiply this by the beta:

1.5 * 7% = 10.5%

Finally, add the risk-free rate:

5% + 10.5% = 15.5%

So, according to the CAPM, the expected return on Sakin stock should be 15.5%.

This problem has been solved

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