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Establish the risk-return relationship


Problem:

How much will Sarah (or any diversified investor) require/expect to earn on each stock (given its riskiness) in order to hold it? In other words, establish the risk-return relationship: build up the CAPM equation using the calculated portfolio risk impact of each stock relative to the market proxy (The Vanguard Index 500 Trust).

Please provide step-by-step solution.

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Finance Basics: Establish the risk-return relationship
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