Question

stock y has a beta of 1.5 and an expected return of 16.35. what is the risk free rate if the market return is 12.5%

Answer 1

the risk free rate of return is 4.8%

Step-by-step explanation:

The computation of the risk free rate of return is shown below:

As we know that

Expected rate of return = Risk free rate of return + beta × (market rate of return - risk free rate of return)

Here we assume the risk free rate of return be x

So ,

16.35% = x + 1.5 × (12.5% - x)

16.35% = x + 18.75% - 1.5x

16.35% - 18.75% = -0.5x

x = 4.8%

Hence, the risk free rate of return is 4.8%