Identify an estimate for the risk-free rate. Assume a market risk premium of 3.8
ID: 2815728 • Letter: I
Question
Identify an estimate for the risk-free rate.
Assume a market risk premium of 3.83%. Using the CAPM, calculate the required rate of return for the stock.
Visit https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/default.aspx
Select Daily Treasury Yield Curve Rates Select 2018 as the Time Period and select Go Use the 5-Year rate on 08/31/2018 as an estimate for the risk-free rate. According to the CAPM: Required rate of return = risk free rate + (beta) (market risk premium)
Beta: 0.62
Explanation / Answer
risk-free rate=2.74%
rate of return = risk free rate + (beta) (market risk premium)
=2.74%+.62*(3.83%)
=5.11%
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr 08/31/18 1.95 2.11 2.28 2.46 2.62 2.7 2.74 2.81 2.86 2.95 3.02Related Questions
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