Asset A has an expected return of 22% and a beta of 1.8. The expected market return is 14%. What is the risk-free rate?
A) 0.6%
B) 1.2%
C) 3.0%
D) 4.0%
E) 6.0%

Question

Quizplus · Accepted Answer

The risk-free rate can be found using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 22% = Risk-Free Rate + 1.8 * (14% - Risk-Free Rate). Solving for the Risk-Free Rate gives 4.0%.

Asset a Has an Expected Return of 22% and a Beta