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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 9%. Investor’s have been requiring a 12.5% annual return on Builtrite’s stock which has a beta of 1.5. What is the current risk-free rate?

2%

3%

4%

5%

Solutions

Expert Solution

12.5% = Rf + 1.5 * (9% - Rf)

12.5% = Rf + 13.5% - 1.5 * Rf

0.5 * Rf = 1%

Rf = 2%

jeff jeffy answered 2 years ago
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