Assume the following information about the market and JumpMasters' stock. JumpMasters' beta = 1.50, the risk-free rate is 3.50%, the market risk premium is 10.0%. Using the SML, what is the expected return for JumpMasters' stock?
A) 7.50%
B) 13.50%
C) 18.50%
D) 27.00%
Answer: C
Explanation: C) The equation for the SML is E(ri) = rf + (rf + [E(rm) - rf] × βi)
= 3.50% + 1.50 ∗ (13.50% - 3.50%) = 18.50%.
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