What is the expected risk-free rate of return if Asset X, with a beta of 1.5, has an expected return of 20 percent, and the expected market return is 15 percent?
A) 5.0%
B) 7.5%
C) 15.0%
D) 22.5%

Question

Quizplus · Accepted Answer

The risk-free rate can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values (20% = Risk-Free Rate + 1.5 * (15% - Risk-Free Rate)), we can solve for the Risk-Free Rate, which comes out to be 5%.

What Is the Expected Risk-Free Rate of Return If Asset