Question

The return on the market portfolio is currently​ 12%. Mobile Phone Corporation stockholders require a rate of return of​ 30% and the stock has a beta of 3.2. According to​ CAPM, determine the riskminus−free rate.

Answer 1

The risk free will be 3.82%

Step-by-step explanation:

We post the CAPM formula and how given data

`Ke= r_f + \beta (r_m-r_f)`

risk free ?

market rate 0.12

premium market market rate - risk free ?

beta(non diversifiable risk) 3.2

Ke = 0.3

Now we post the know values and solve for risk free

`0.3= risk-free + 3.2 (0.12 - riskfree)`

`0.3 = risk-free + 3.2 * 0.12 - 3.2riskfree`

`0.3 = 0.384 - 2.2riskfree`

`0.3-0.384 = -2.2riskfree`

`-0.084/-2.2= riskfree`

risk free = 0.0381818181818182‬ = 3.82%