A stock has an expected return of 0.08, its beta is 1.5, and the expected return...

A stock has an expected return of 0.08, its beta is 1.5, and the expected return on the market is 0.1. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123.

Solutions

Expert Solution

Expected return = Risk-free rate + Beta(Market return - Risk-free rate)

0.08 = Risk-free rate + 1.5(0.1 - Risk-free rate)

0.08 = Risk-free rate + 0.15 - 1.5Risk-free rate

1.5Risk-free rate - Risk-free rate = 0.15 - 0.08

0.5Risk-free rate = 0.07

Risk-free rate = 0.07 / 0.5

Risk-free rate = 0.1400

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5...

A stock has an expected return of 12.66 percent. The beta of the stock is 1.5 and the risk-free rate is 5 percent. What is the market risk premium? (Answer in a percentage, but do not include the % sign and round to two decimal places, i.e., 18.35)

Stock A has a beta of 1.5 and an expected return of 10%. Stock B has...

Stock A has a beta of 1.5 and an expected return of 10%. Stock B has a beta of 1.1 and an expected return of 8%. The current market price for stock A is $20 and the current market price for stock B is $30. The expected return for the market is 7.5%. (assume the risk free asset is a T-bill). 8- What is the risk free rate? A) 0.25% B) 1.25% C) 2.00% D) 2.50% E) None of the...

Stock J has a beta of 1.5 and an expected return of 15%, while Stock K has a beta of .75 and an expected return of 9%.

Stock J has a beta of 1.5 and an expected return of 15%, while Stock K has a beta of .75 and an expected return of 9%. You want a portfolio with the same risk as the market. What is the expected return of your portfolio?Group of answer choices10 percent11 percent12 percent13 percent14 percent

A stock has a beta of 1.5. The market's expected total return is 10% pa and...

A stock has a beta of 1.5. The market's expected total return is 10% pa and the risk free rate is 5% pa, both given as effective annual rates. In the last 5 minutes, bad economic news was released showing a higher chance of recession. Over this time the share market fell by 1%. The risk free rate was unchanged. What do you think was the stock's historical return over the last 5 minutes, given as an effective 5 minute...

A stock has an expected return of 0.13, its beta is 1.44, and the expected return...

A stock has an expected return of 0.13, its beta is 1.44, and the expected return on the market is 0.09. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123. You own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 1 and the total portfolio is equally as risky as the market, what must the beta be for the other...

A stock has a beta of 1.5, an expected return of 15%, and lies on the security market line.

A stock has a beta of 1.5, an expected return of 15%, and lies on the security market line. A risk-free asset is yielding 3%. You want to create a $10,000 portfolio consisting of Stock A and the risk-free security such that the portfolio beta is .75. What rate of return should you expect to earn on your portfolio?Group of answer choices8 percent9 percent10 percent11 percent12 percent

5) A stock has an expected return of 0.14, its beta is 0.94, and the expected...

5) A stock has an expected return of 0.14, its beta is 0.94, and the expected return on the market is 0.07. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123. 6) You own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 1.77 and the total portfolio is equally as risky as the market, what must the beta be for...

1. A stock has an expected return of 8.4 percent, its beta is 1.80, and the...

1. A stock has an expected return of 8.4 percent, its beta is 1.80, and the risk-free rate is 3.5 percent. What must the expected return on the market be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.) 2. A stock has a beta of .8 and an expected return of 11 percent. If the risk-free rate is 4.5 percent, what is the market risk...

Stock A has a beta of 1.5, the risk-free rate is 4% and the return on...

Stock A has a beta of 1.5, the risk-free rate is 4% and the return on the market is 9%. If inflation changes by -2%, by how much will the required return on Stock A change?

Consider a single factor APT. Portfolio A has a beta of 1.5 and an expected return...

Consider a single factor APT. Portfolio A has a beta of 1.5 and an expected return of 24%. Portfolio B has a beta of 0.9 and an expected return of 13%. The risk-free rate of return is 4%. An arbitrage portfolio in which you take a position in a combination of the highest beta portfolio and the risk-free asset, and an opposite position in the other risky portfolio would generate a rate of return of ______%.

Subjects