At Westonci.ca, we connect you with the best answers from a community of experienced and knowledgeable individuals. Discover precise answers to your questions from a wide range of experts on our user-friendly Q&A platform. Connect with a community of professionals ready to provide precise solutions to your questions quickly and accurately.

the common stock of sterling co. has an expected return of 14.7 percent and a beta of 1.3. the expected return on the market is 12.0 percent. what is the risk-free rate?

Sagot :

The risk-free rate is 3%. A market risk premium in finance and economic is used to measure how much the level of risk.

A risk premium means a measure of excess return that is used by an individual to compensate being subjected to an improved degree of risk. A risk premium is the common definition being the expected risky return less the risk-free return.

To find the amount of risk free rate, we can calculate it use this formula:

ER = rf + β (rm - rf)

Where,

ER = Expected Return = 14.7% = 0.147

rf = Risk free rate

β = beta = 1.3

rm = Return market = 12% = 0.12

Hence,

0.147 = rf + 1.3 (0.12 - rf)

0.147 = rf + 0.156 - 1.3rf

0.147 - 0.156 = -0.3 rf

-0.009 = -0.3 rf

rf = 0.03

Thus, the risk-free rate is 3%.

Learn more risk premium, here brainly.com/question/28235630

#SPJ4

Thanks for using our platform. We aim to provide accurate and up-to-date answers to all your queries. Come back soon. Your visit means a lot to us. Don't hesitate to return for more reliable answers to any questions you may have. Thank you for using Westonci.ca. Come back for more in-depth answers to all your queries.