Question

The market risk premium is 9.0%, and the risk-free rate is 5.0%. If the expected return on a bond is 9.5%, what is its beta?

Answer 1

The beta is 1

Step-by-step explanation:

The computation of beta using the CAPM model is shown below:

As we know that

Expected rate of return = Risk free rate of return + Beta × Market risk premium

9.5% = 5% + Beta × 9.0%

9.5% - 5% = Beta × 9.0%

9.0% = Beta × 9.0%

So, the beta is 1

We simply applied the above formula so that the correct value could come

And, the same is to be considered