What is the expected return for companies

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Here is the information about two companies. The T-bill rate is 4% and the market risk premium is 6%.

Company             Bill's Appliance           Dollar Spruce  

Beta                           1.5                             1.2

Actual return               12%                           11.2%

What is the expected return for these companies, according to the capital asset pricing model (CAPM)?

(Denote Bill's Appliance by subscript B and Dollar Spruce by subscript D.)

A. E(RB) = 12% and E(RD) = 11.2%

B. E(RB) = 7% and E(RD) = 6.4%

C. E(RB) = 13% and E(RD) = 6.4%

D. E(RB) = 13% and E(RD) = 11.2%

Reference no: EM132404491

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