A stock has an expected return of 11 percent, its beta is 1.60, and the expected

Question

A stock has an expected return of 11 percent, its beta is 1.60, and the expected return on the market is 9 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A stock has an expected return of 11 percent, its beta is 1.60, and the expected return on the market is 9 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Expected return = Rf+×Rp

Rf is risk free return

Rp is risk premium

11% = Rf×1.6×(9%-Rf)

Risk free rate, Rf = 5.67%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.