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QUESTION
Suppose CAPM works, and you know that the expected returns on Amazon and Walmart are estimated to be 13.00% and 9.25%, respectively.
Suppose CAPM works, and you know that the expected returns on Amazon and Walmart are estimated to be 13.00% and 9.25%, respectively. You have just calculated extremely reliable estimates of the betas of Amazon and Walmart to be 1.55 and 0.81, respectively. Given this data, what is a reasonable estimate of the risk-free rate in percentage (the return on a long-term government bond)?
