The beta for General Motors (GM) is 0.5, the risk-free rate is 4%, and the market return is 9%. What is GM's risk-adjusted discount rate?

Question

Quizplus · Accepted Answer

The formula for the risk-adjusted discount rate is:

Risk-adjusted discount rate = Risk-free rate + Beta x (Market return - Risk-free rate)

Substituting the given values, we get:

Risk-adjusted discount rate = 4% + 0.5 x (9% - 4%) = 4% + 0.5 x 5% = 6.5%

Therefore, the correct answer is C) 6.5%.

The Beta for General Motors (GM) Is 0