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Consider the CAPM. The expected return on the market is 10%. Theexpected return on a...

Consider the CAPM. The expected return on the market is 10%. The expected return on a stock with a beta of 1.7 is 19%. What is the risk-free rate?

Solutions

Expert Solution

R = Rf+ B(Rm-Rf)
Where,
Rf = Risk Free Return
B= Beta
Rm = Market rate of return
Rm-Rf= Risk Premium
19%=Rf+1.7*(0.1-Rf)
0.19 =Rf + 0.17 -Rf 1.7
0.19 =-0.7rf +0.17
Rf = -2.86%
risk free rate = -2.86%

jeff jeffy answered 3 years ago
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