1. Risk- Free Rate
A stock has an expected return of 14 percent, a beta of 1.70, and the expected return on the market is 10 percent. What must the risk-free rate be?
Risk-Free Rate = ?
2. Market Risk Premium
A stock has a beta of .8 and an expected return of 13 percent. If the risk-free rate is 4.5 percent, what is the market risk premium?
Market risk premium = ?
Please show the calculation along with the answer.© BrainMass Inc. brainmass.com June 4, 2020, 1:28 am ad1c9bdddf
CAPM Formula: Required Return = risk free rate + beta * (expected return on market - risk free rate)
Required return = 14% ; beta = 1.70 ; expected return on market = 10%. In put these ...
The solution calculates the Risk Free Rate and Market Risk Premium, using CAPM.