Amalgamated Aluminum stock has a beta of 1.2.Today's market risk premium is 13%.Amalgamated Aluminum stockholders require a rate of return of 22%.What is the present risk-free rate?

Question

Quizplus · Accepted Answer

The correct answer is A because the present risk-free rate is calculated as the required rate of return minus the beta times the market risk premium. In this case, the required rate of return is 22%, the beta is 1.2, and the market risk premium is 13%. So, the present risk-free rate is 22% - (1.2 * 13%) = 6.40%.

Amalgamated Aluminum Stock Has a Beta of 1