The expected return on the market portfolio is currently 11%.Battmobile Corporation share holders require a rate of return of 23.0%, and the shares has a beta of 2.5.According to CAPM, determine the risk-free rate.
A)17.5%
B)2.75%
C)3.0%
D)9.2%

Question

Quizplus · Accepted Answer

According to the CAPM formula: Required Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 23% = Risk-Free Rate + 2.5 * (11% - Risk-Free Rate). Solving for the Risk-Free Rate gives 3.0%.

The Expected Return on the Market Portfolio Is Currently 11