Marjen shares have a required return of 20%.The expected market return is 15%,and the beta of Marjen's share is 1.5.Calculate the risk-free rate.
A)4%
B)5%
C)6%
D)7%

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) can be used to calculate the required return of a stock, given its beta and the expected market return. The formula is:

Required Return = Risk-Free Rate + Beta × (Expected Market Return - Risk-Free Rate)

Plugging in the given values, we get:

20% = RF + 1.5 × (15% - RF)

Solving for RF, we get:

RF = 5%

Therefore, the risk-free rate is 5%, and the best choice is B.

Marjen Shares Have a Required Return of 20