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 expected return on an asset can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 20% = Risk-Free Rate + 1.5 * (15% - Risk-Free Rate). Solving for the Risk-Free Rate gives 5%.

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