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28-05-2021
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A stock has a beta of 1.5 and an expected return of 16.35%. What is the risk-free rate if the market rate of return is 12.5%

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ewomazinoade ewomazinoade

30-05-2021

Answer:

4.8%

Explanation:

According to the capital asset price model: Expected rate of return = risk free + beta x (market rate of return - risk free rate of return)

16.35% = r + 1.5(12.5 - r)

16.35% = r + 18.75 - 1.5r

2.4 =0.5r

r = 4.8%

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