Expected return on a security with a beta

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Suppose that the market portfolio is equally likely to increase by 14% or decrease by 4%. Security "X" goes up on average by 22% when the market goes up and goes down by 14% when the market goes down. Security "Y" goes down on average by 32% when the market goes up and goes up by 26% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.

The expected return on a security with a beta of 1.8 is closest to:

Group of answer choices

  • 5.0%
  • 4.8%
  • 5.8%
  • 6.6%

Reference no: EM132376506

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