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9 September, 22:23

Investors expect the market rate of return this year to be 11.50%. The expected rate of return on a stock with a beta of 0.8 is currently 9.20%. If the market return this year turns out to be 8.10%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

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  1. 9 September, 22:29
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    6.48%

    Explanation:

    For computing the revised expected return first we have to find out the expected return which is shown below:

    Expected return = Beta * Market rate of return

    = 0.8 * 0.115

    = 0.092 or 9.2%

    Now the required expected rate of return if market return changed to 8.10%

    Revised Expected return = 0.8 * 0.081

    = 6.48%
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