Question

What is the risk-free rate if beta is 1.1, the expected return 8.4% and the expected return for the market portfolio is 8%

Answer 1

4%

Step-by-step explanation:

Given the following :

Beta (B) = 1.1

Expected return (Re) = 8.4%

Expected return for market portfolio (Rm) = 8%

Using the relation :

Re = [ Rf + ((Rm - Rf) * B)]

We are to calculate Rf(risk-free rate)

Inputting our values :

8.4% = [Rf + ((8% - Rf) * 1.1]

8.4% = Rf + 8.8% - 1.1Rf

8.4% - 8.8% = Rf - 1.1Rf

- 0.4% = - 0.1Rf

- 0.004 = - 0.1Rf

Rf = 0.004 / 0.1

Rf = 0.04

0.04 * 100%

= 4%