Question

Stock A has an expected return of 14.4 percent and a beta of 1.21. Stock B has an expected return of 12.87 percent and a beta of 1.06. Both stocks have the same reward-to-risk ratio. What is the risk-free rate?
a. 2.06 percent
b. 2.28 percent
c. 1.79 percent
d. 3.35 percent
e. 1.92 percent

Answer 1

Answer:

a. 2.06 percent

Explanation:

Calculation to determine the risk-free rate

Risk-free rate=(.144-Rf)/1.21 = (.1287-Rf)/1.06

Rf = .0206*100

Rf=2.06 percent

Therefore the risk-free rate is 2.06 percent