To solve this, we will use the Capital Asset Pricing Model (CAPM) formula, which calculates the expected rate of return on an investment.

The CAPM formula is:

$r_e = r_f + \beta \times (r_m - r_f)$

Where:

• $r_e$ = expected return on the equity investment
• $r_f$ = risk-free rate (1.4% or 0.014 in decimal)
• $\beta$ = beta of the investment (1.8 for PayPal)
• $r_m$ = expected return of the market (9% or 0.09 in decimal)

Now, plugging the given values into the CAPM formula:

$r_e = 0.014 + 1.8 \times (0.09 - 0.014)$

Let's compute this step-by-step:

1. $r_m - r_f = 0.09 - 0.014 = 0.076$
2. Multiply by Beta: $1.8 \times 0.076 = 0.1368$
3. Add the risk-free rate: $0.014 + 0.1368 = 0.1508$

Thus, the expected return $r_e$ is 0.1508, or 15.08%.

Would you like more details or have any further questions?

Here are five related questions:

1. What factors influence a company's beta in the CAPM model?
2. How does a higher risk-free rate affect the expected return?
3. What are the limitations of using CAPM for investment decisions?
4. How does CAPM differ from other models, such as the Arbitrage Pricing Theory (APT)?
5. How can market conditions affect the accuracy of the CAPM predictions?

Tip: Always express the expected return as a percentage in financial models to ensure clarity when comparing different investment opportunities.