The risk-free rate will be Expected return = Risk-free rate + Beta(Market return - Risk-free rate) 0.8
In practice, the risk-free rate is commonly considered to equal to the interest paid on a 3-month government Treasury bill, generally the safest investment an investor can make. The risk-free rate is a theoretical number since technically all investments carry some form of risk, as explained here.
The risk-free rate serves as the minimum rate of return, to which the excess return (i.e. the beta multiplied by the equity risk premium) is added. The equity risk premium (ERP) is calculated as the average market return (S&P 500) minus the risk-free rate.
The value of a risk-free rate is calculated by subtracting the current inflation rate from the total yield of the treasury bond matching the investment duration. For example, the Treasury Bond yields 2% for 10 years. Then, the investor would need to consider 2% as the risk-free rate of return.
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