A stock has an expected return of 14 percent, a beta of 1.65, and the expected return on the market is 11.2 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Risk-free rate             %

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Asked Nov 24, 2019
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A stock has an expected return of 14 percent, a beta of 1.65, and the expected return on the market is 11.2 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 
Risk-free rate             %

 
 
 
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Expert Answer

Step 1

Given that the expected return on a stock is 14%, expected return on the market is 11.2% and the beta is 1.65, we need to determine the risk-free rate.

Step 2

To determine the risk-free rate, we need to use the CAPM formula. According to the formula:

Step 3
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Expected return=Risk free rate Beta x (Market return - Risk free rate)

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