the risk-free rate of return is 4.2 percent and the market risk premium is 14 percent. what is the expected rate of return on a stock with a beta of 1.5?

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04-11-2022
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the risk-free rate of return is 4.2 percent and the market risk premium is 14 percent. what is the expected rate of return on a stock with a beta of 1.5?

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RajeevKumarBag RajeevKumarBag · Answer 1 · 2022-11-09T11:13:42-05:00

Government-backed securities are regarded as offering a risk-free total return. Risk-free investment returns are regarded as a standard for other types of investments.

A stock's expected return is 10.22% (C).

The following is the calculation:

Expected return = Risk-free rate minus Beta * (Market rate of return minus Risk-free rate) Expected return = 4.2% + (1.4 * (8.5% - 4.2%) Expected return = 4.2% + 6.02% Expected return = 10.22%

What is the risk-free rate of return in 2022 at the moment?

On April 7, 2022, the Kroll U.S. Normalized Risk-Free Rate was raised from 2.5% to 3.0%.valuation of businesses, assets, and other investments for tax, financial, and other reporting purposes.

In CAPM, what is the risk-free rate?

The interest rate that investors anticipate earning over time on an investment that carries no risks, particularly default risk and reinvestment risk, is calculated using a risk-free rate of return formula. It may vary depending on the investor, but typically it is closer to the base rate of a Central Bank.

Learn more about Risk-free investment returns here:

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