A stock has an expected return of 15 percent, its beta is 1.70, and the expected

Question

A stock has an expected return of 15 percent, its beta is 1.70, and the expected return on the market is 10.8 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 15 percent, its beta is 1.70, and the expected return on the market is 10.8 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 = Risk Free Rate + Beta (Market Risk - Risk Free Rate)

15 = X + 1.7 (10.8 - X)

15 = X + (18.36 - 1.7X)

X = 4.8, So Risk Free Rate must be 4.8% .

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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