Assume Gracie Stock provides an actual return of 8.5%. The covariance between Gracie and the...
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Assume Gracie Stock provides an actual return of 8.5%. The covariance between Gracie and the market portfolio is 0.0354 and the standard deviation of the market portfolio is 0.2324. Assume the risk-free rate is 2% and the expected return on the market portfolio is 13.5%. What does the CAPM say about the expected return on Gracie Stock? Is it overpriced or underpriced?
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