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On the basis of an analysis of past returns and of inflationary expectations, Marta Gomez...

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Finance

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On the basis of an analysis of past returns and of inflationary expectations, Marta Gomez feels that the expected return on stocks in general is 12 percent. The risk-free rate on short-term Treasury securities is now 7 percent. Gomez is particularly interested in the return prospects for Kessler Electronics Corporation. Based on monthly data for the past five years, she has fitted a characteristic line to the responsiveness of excess returns of the stock to excess returns of the S\&P 500 Index and has found the slope of the line to be 1.67. If financial markets are believed to be efficient, what return can she expect from investing in Kessler Electronics Corporation

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