A stock has an expected return of 125 percent a beta of 175

A stock has an expected return of 12.5 percent, a beta of 1.75, and the expected return on the market is 9.6 percent. What must the risk-free rate be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Risk-free rate %

Solution

12.50 = risk free rate + 1.75*( 9.6% - risk free rate)

0.75 risk free rate = 4.30%

risk free rate = 5.73%