A stock has an expected return of 12.5 percent and a beta of 1.16, and the expected return on the market is 11.5 percent. What must the risk-free rate be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Risk-free rate

A stock has an expected return of 12.5 percent and a beta of 1.16, and the expected return on the market is 11.5 percent. What must the risk-free rate be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Risk-free rate

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: A stock's beta is 1.8 and the market risk premium is 6.6%. If the risk-free rate is 3.1%, what is…

A: The risk premium refers to the extra return over the risk-free rate that the stock provides for its…

Q: A stock has an expected return of 12.4%, the risk-free rate is 6.5%, and the market risk premium is…

A: In the given problem we require to calculate the Beta of the stock using following details: Expected…

Q: The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: A stock has an expected return of 13%, its beta is 0.79, and the risk-free rate is 5%. What must the…

A: We require to calculate the expected return on the market in this question using following details:…

Q: Assume that the risk-free rate is 6.00% and the market risk premium is 6.75%. What is the expected…

A: Given: Risk free rate=6% Market risk premium = 6.75%

Q: A stock has a required return of 15%, the risk-free rate is 7.5%, and the market risk premium is 5%.…

A: CAPM states that the return of the stock and the systematic risk associated with the stock are…

Q: A stock has a beta of 1.15, the expected return on the market is 10.5%, and the risk - free rate is…

A: The expected return on the stock is calculated using the following equation

Q: A stock has an expected return of 12.91 percent. The beta of the stock is 1.2 and the risk-free rate…

A: The market risk premium is an important concept when the expected return for the stock is…

Q: A stock has a required return of 13%, the risk-free rate is 6.5%, and the market risk premium is 3%.…

A: Capital Asset pricing Model (CAPM) is used to determine the required rate of return on investment…

Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock's beta is 2.27. What is…

A: Following details are given in the question: Risk free rate = 5.6% Market Risk premium = 8.5%…

Q: Stock Y has a beta of 1.30 and an expected return of 13.0%. Stock Z has a beta of .75 and an…

A: We will calculate the expected return using the Capital Asset Pricing Method and then compare with…

Q: erilu Markets has a beta of 1.46. The risk-free rate of return is 2.98 percent and the market rate…

A: Risk premium = Beta(market return - risk free rate)

Q: A stock has a beta of 1.61, the expected return on the market is 0.07, and the risk-free rate is…

A: Return on stock :— It is the rate of return expected by the investors of stock. According to CAPM…

Q: Give typing answer with explanation and conclusion Assume that the risk-free rate is 2.5% and the…

A: Step 1 The financial requirements of an investment, development or significant purchase are outlined…

Q: A stock has an expected return of 0.11, its beta is 1.22, and the risk-free rate is 0.03. What must…

A: It has been provided: Beta = 1.22 Expected return = 0.11 Risk-free rate = 0.03 Required: Expected…

Q: Beta and required rate of return A stock has a required return of 11 percent; the risk-free rate is…

A: In the given question we require to compute the beta of stock from below details : Required return =…

Q: The risk-free rate is 3.7 percent and the expected return on the market is 12.3 percent. Stock A has…

A: If expected return is more than required return then security is undervalued.If required return is…

Q: The expected return on stock A is 11.70 percent. The expected return on stock B is 9.40 percent.…

A: The objective of the question is to calculate the risk premium using the Capital Asset Pricing Model…

Q: A stock's beta is 1.6 and the market risk premium is 7.7%. If the risk-free rate is 3.5%, what is…

A: Capital Asset Pricing Model ( CAPM) is an alternative model to find out the required rate of return…

Q: Assume that the risk-free rate is 6.5% and the required return on the market is 8%. What is the…

A: Given: Risk free rate =6.5%Required rate on the market =8%Beta =0.6

Q: A stock has a beta of 1.2 and an expected return of 11.6 percent. If the risk-free rate is 5.1…

A: Given, Expected return 11.6 percent. risk-free rate is 5.1 percent

Q: A stock has an expected return of 10.99 percent, the risk-free rate is 2.46 percent, and the market…

A: Expected return = 10.99%Risk-free rate = 2.46%Market risk premium = 4.95%To find: Beta of the stock.…

Q: The risk-free rate is 3% and the market risk premium is 9%. If stock A has a beta of -0.9, what is…

A: Formulas: Required return = Risk free rate + (Beta*Market risk premium)

Q: Stock Y has a beta of 0.9 and an expected return of 11.4 percent. Stock Z has a beta of 1.5 and an…

A: Expected return is an important metric in investment analysis, as it helps investors assess the…

Q: The risk-free rate is 1.13% and the market risk premium is 6.26%. A stock with a β of 0.84 will have…

A: Given: Risk free rate = 1.13% market risk premium = 6.26% Beta = 0.84

Q: 1.The risk-free rate of return is 2.6 percent and the market risk premium is 10 percent. What is the…

A: We need to find out the expected return of the stock by using Capital Asset Pricing Model (CAPM).…

Q: A stock has a required return of 11%, the risk-free rate is 3.5%, and the market risk premium is 5%.…

A: The objective of the question is to calculate the beta of the stock and to understand the impact of…

Q: Company A has a beta of 0.9 , while Company B's beta is 1.4 . The market risk premium is 13.78 %,…

A: The Capital Asset Pricing Model (CAPM) illustrates the relationship between systematic risk, or the…

Q: A stock has an expected return of 7.72 percent, the risk-free rate is 2.9 percent, and the market…

A: We can calculate Beta by using the CAPM model as it helps in showing the relationship between the…

Q: The risk-free rate of return is currently 0.03, whereas the market risk premium is 0.04. If the beta…

A: Following details are given in the question: Risk free rate of return = 0.03 = 3% Market Risk…

Q: Stock A has a beta coefficient = 1.12. calculate the expected rate of return of the stock A given…

A: Solution:- Capital Asset Pricing Model (CAPM) is the model to calculate expected return on a stock.…

Q: A stock has an expected return of 16 percent, its beta is 0.6, and the risk-free rate is 6.4…

A: Given the following information: Expected return on stock (r) = 16% Beta (b) = 0.6 Risk free rate…

Q: None

A: As per CAPM, Expected return on stock = Risk free rate + Beta * Market risk premium15.7% =…

Q: A stock has a beta of 0.65, the expected return on the market is 15%, and the risk- free rate is 8%.…

A: In the given problem we require to calculate the expected return on stock: According to CAPM i.e.…

Q: A stock has an expected return of 0.15, its beta is 0.52, and the expected return on the market is…

A: Expected return = 0.15 Beta = 0.52 Market return = 0.08

Q: A stock has an expected return of 13.4 percent and a beta of 1.15, and the expected return on the…

A: The Capital Asset Pricing Model (CAPM) is a financial model that establishes a relationship between…

Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is…

A: The risk-free rate is 5.6%, beta is 2.27 and market risk premium is 8.5%. Capital Asset Pricing…

Q: A stock has an expected return of 9.7 percent, its beta is .89, and the risk-free rate is 2.9…

A: Capital Asset Pricing Model (CAPM) is used to determine the required return on a stock which is the…

Q: Ο A stock has a required return of 16%, the risk-free rate is 5.5%, and the market risk premium is…

A: To calculate the stock's beta and then determine the effect of an increase in the market risk…

Q: A stock has an expected return of 18.0 percent, a beta of 1.90, and the return on the market is…

A: 2Investors have different options for making investments, and the motive behind investments is to…

Q: A stock has a beta of 1.08, the expected return on the market is 0.09, and the risk-free rate is…

A: Here, Beta = 1.08 Expected return on the market = 0.09 Risk-free rate = 0.06 To Find: Expected…

Q: Following the Systematic Risk Principle, which of the following stocks has the smallest risk…

A: Risk of an investment refers to the variability of returns from the investment. In other words, risk…

Q: A stock has an expected return of 15.2 percent, the risk-free rate is 3.4 percent, and the market…

A: As per CAPM model, expected return = risk free rate + beta*market risk premium

Q: A stock has an expected return of 11 percent, its beta is 1.20, and the risk-free rate is 4.4…

A: Formula to Calculate the Expected Equity Return as belowExpected Equity Return = Risk Free return +…

Q: A stock has an expected return of 11.4%, the risk-free rate is 5.5%, and the market risk premium is…

A: In the given question we are require to calculate the Beta: We can calculate the Beta using Capital…

Q: Stock A has an expected return of 13.52 percent. Stock B has an expected return of 9.24 percent.…

A: The concept in question is based on the Capital Asset Pricing Model (CAPM), a finance theory used to…

Q: Stock A has a beta of 1.30, and its required return is 13.25%. Stock B's beta is 0.90. If the…

A: Given Beta of Stock A = 1.30 Risk free Rate = 4.75% Required return of stock A = 13.25%

Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

A stock has an expected return of 12.5 percent and a beta of 1.16, and the expected
return on the market is 11.5 percent. What must the risk-free rate be? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Risk-free rate
%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Information;

VIEW

Step 2: Calculation of risk free rate;

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

A stock's beta is 1.5 and the market risk premium is 5.6%. If the risk-free rate is 2.9%, what is the stock's required return according to CAPM? Answer as a percent and round to 2 decimal places. Answer:
Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) a. The effect of a change in the market risk premium depends on the slope of the yield curve. b. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. c. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. d. The effect of a change in the market risk premium depends on the level of the risk-free rate. e. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.
A stock has an expected return of 11.25 percent, a beta of 0.82, and the expected return on the market is 12.5 percent. What must the risk-free rate be?
A stock has an expected return of 0.11, its bets is 0.82, and the risk-free rate is 0.04. What must the expected return on the market be?
Assume that the risk-free rate is 2.8 percent, and that the market risk premium is 4.8 percent. If a stock has a required rate of return of 16.1 percent, what is its beta? Your Answer: Answer
If the risk free rate is 4.4%, the expected return on the market portfolio (i.e., Rm)( is 11.6%, and the beta of Stock B is 0.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer: If the risk free rate is 1.2%, the market risk premium (i.e., Rm - Rf) is 13.5%, and the beta of Stock B is 1.9 , what is the required rate of return for Stock B according to the Capital Asset Pricing Model (CAPM)? (Round your answer rounded to one decimal place and record without a percent sign). Your Answer:
Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place. ? % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place. ? % The above is a two part question, therefore the second answer is determined based off the first answer provided. Please, please, please do provide both answers.
A stock has a beta of 0.81, the expected return on the market is 11%, and the risk- free rate is 10.5%. What must the expected return on this stock be? (Do not round intermediate calculations. Enter answer as a percent rounded to 2 decimal places.)
Suppose the common stock of United Industries has a beta of 0.83 and an expected return of 8.7 percent. The risk-free rate of return is 3.4 percent while the inflation rate is 2.8 percent. What is the expected market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A stock has a beta of 1.4 when the risk premium is 6.2%. If the risk free rate is 2.4, what is the stock's fair return? Convert to a percent and round to two decimal places. a. 2.4+1.4 b. 6.2*1.4+2.4 c. 2.4+6.2
A stock has an expected return of 0.12, its beta is 1.36, and the risk-free rate is 0.03. What must the expected return on the market be? Enter the answer with 4 decimals (e.g. 0.0567).
A stock has an expected return of 0.15, its beta is 0.75, and the risk-free rate is 0.05. What must the expected return on the market be? Enter the answer with 4 decimals (e.g. 0.0567).

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS