The expected return on the market portfolio is currently 11%.Battmobile Corporation shareholders require a rate of return of 23.0%,and the share 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

Using the CAPM formula, we can solve for the risk-free rate.

23.0% = Rf + 2.5(11% - Rf)

23.0% = 2.5(11%) - 1.5Rf

23.0% - 2.5(11%) = -1.5Rf

Rf = (23.0% - 2.5(11%)) / -1.5

Rf = 3.0%

Therefore, the answer is C) 3.0%.

The Expected Return on the Market Portfolio Is Currently 11