Stock A has a required return of 18% and a beta of 1.4. The expected market return is 14%. What is the risk-free rate?
A)0.6%
B)1.2%
C)3.0%
D)4.0%
E)6.0%

Question

Quizplus · Accepted Answer

The risk-free rate can be calculated using the Capital Asset Pricing Model (CAPM) formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 18% = Risk-Free Rate + 1.4 * (14% - Risk-Free Rate). Solving for the Risk-Free Rate gives 4%.

Stock a Has a Required Return of 18% and a Beta