Purchase Solution

Determining the CAPM: what is the Risk-free rate

Not what you're looking for?

Ask Custom Question

A stock has an expected return of 20% and a beta of 1.5, and the expected return on the market is 15%. What must the risk-free rate be?

Purchase this Solution
Solution Summary

The solution explains the computation of the answer of the risk-free rate.

Solution Preview

Keep in mind the calculation for a stock's expected return. The Expected return (20%) is essentially equal to the market's risk free rate (unknown in this case) ...

Purchase this Solution
Free BrainMass Quizzes
SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Situational Leadership

This quiz will help you better understand Situational Leadership and its theories.

Operations Management

This quiz tests a student's knowledge about Operations Management

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

View More Free Quizzes
Related BrainMass Solutions

  • Risk Premium and Capital Asset Pricing Model

    If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Intel stock and 40% Boeing stock, according to the CAPM?

  • Cost of equity capital

    If the current risk-free rate is 6.5%(Krf)and the expected return on the common stock as a whole is 16%(Km),determine the cost of equity capital (Ke)for the firm (using the CAPM).

  • CAPM Model - Calculating Expected & Risk Free Return

    Solution explains the steps in determining expected rate and risk free return using CAPM model.

  • Finance:Cost of equity and value of company.

    on the above information, what is the required rate of return?

  • Capital Asset Pricing Model (CAPM) & Discounted Cash Flow (DCF)

    Therefore, CAPM based on the estimated market performance and the risk free rate, which are both exogenous to the company. Discounted Cash Flow Method is one standard way of determining the cost of equity.

  • Present and Future Value Techniques

    What are two types of risk involved in a portfolio or a security? Give an example. 7. Explain the term Beta in determining risks in a portfolio or security. 8. What is the CAPM? When would you use it? 9. What is the SML?

  • Do we need CAPM for capital budgeting?

    CAPM uses the expected return of the securities considered, because it equals the rate on a risk free security (that is, the net present value) plus a risk premium.

  • Effectiveness of the Capital Asset Pricing Model (CAPM)

    So settling on a time horizon for the asset valuation is critical to determining the risk-free rate to use in the CAPM. CAPM VARIABLES AND ASSUMPTIONSââ?¬"BETA Even more contentious than RF, is Beta. Beta represents a ââ?

  • Capital Asset Pricing Model Assistance

    One of the drawbacks of CAPM is that it can be unrealistic because of its many assumptions, such as the assumption that there is a perfect capital market or that one can borrow and lend money at the risk free rate of return.

View More Related Solutions