A stock has an expected return of 13.5 percent, its beta is 1.40, and the expected...
A stock has an expected return of 13.5 percent, its beta is 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 enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Homework Answers
expected return=risk free rate+beta*(market rate-risk free rate)
13.5=risk free rate+1.4*(11.5-risk free rate)
13.5=risk free rate+16.1-1.4*risk free rate
risk free rate=(16.1-13.5)/(1.4-1)
=6.5%
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