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Polly Khan is trying to calculate the risk-free rate given the following information: The current market...

Polly Khan is trying to calculate the risk-free rate given the following information: The current market rate of interest is 10%. Investor’s have been requiring a 15% annual return on Builtrite’s stock which has a beta of 2.0. What is the current risk-free rate?

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Expert Solution

Ans 5.00%

Required Return = Risk free Return + (Market Return - Risk free return)* Beta
15% = Rf + (10% - Rf) * 2.00
15% = Rf + 20% - 2Rf
Rf = 20% - 15%
Rf = 5.00%

jeff jeffy answered 2 years ago
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