Math Problem Statement
A stock with a beta of 1.8 has an expected rate of return of 16%. If the market return this year turns out to be 6 percentage points below expectations, what is your best guess as to the rate of return on the stock?
Solution
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Math Problem Analysis
Mathematical Concepts
Finance
Capital Asset Pricing Model (CAPM)
Stock Market Volatility
Formulas
R_i = R_f + β_i × (R_m - R_f)
Stock return adjustment = β × Market return change
Theorems
Capital Asset Pricing Model (CAPM)
Suitable Grade Level
Undergraduate Finance/Economics
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