Find the risk free rate if a company's rate of return is 12%, its Beta is...

Question

Question

Find the risk free rate if a company's rate of return is 12%, its Beta is -1.2 and the expected return on the stock market is 14%.

Answer 1

Answer #1

The risk free rate is computed as shown below:

Company's rate of return = Risk free rate + Beta ( Expected return on stock market - Risk free rate )

0.12 = Risk free rate - 1.2 ( 0.14 - Risk free rate )

0.12 = Risk free rate - 0.168 + 1.2 Risk free rate

0.288 = 2.2 Risk free rate

Risk free rate = 13.09% Approximately

Feel free to ask in case of any query relating to this question

Answer 2

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