A stock has an expected return of 13.5 percent, a beta of 1.40, and the expected

Question

A stock has an expected return of 13.5 percent, a beta of 1.40, and the expected return on the market is 11.5 percent. What must the risk-free rate be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

A stock has an expected return of 13.5 percent, a beta of 1.40, and the expected return on the market is 11.5 percent. What must the risk-free rate be? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Explanation / Answer

The capital asset pricing model (CAPM) is a model that calculates expected return based on expected rate of return on the market, the risk-free rate and the beta coefficient of the stock.

The formula is:

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