Answer:
The risk free rate is 3.325%
Explanation:
The required rate of return or cost of equity of a stock can be calculated using the CAPM. The CAPM estimates the required rate of return of a stock based on three factors- risk free rate, stock's beta and the market risk premium. The equation of required rate of return under CAPM is,
r = rRF + Beta * (rM - rRF)
Where,
- rRF is the risk free rate
- rM is the return on market
- (rM - rRF) gives us the risk premium of market
We already have the values for r, Beta and rM. Plugging in these values in the formula, we calculate the rRF to be,
Let rRF be x.
0.1185 = x + 1.24 * (0.102 - x)
0.1185 = x + 0.12648 - 1.24x
1.24x - x = 0.12648 - 0.1185
0.24x = 0.00798
x = 0.00798/0.24
x = 0.03325 or 3.325%
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<span>$11,320 with its interest rate over the year will be $13659.84. If Francine paid $436 each month for a year he would have paid off $5232 in a year. His debt balance would still be remanding at $8427.84. Francine will have paid off a large amount of his payment plan with the company however he will still be required to spend 18 months or so to pay back what he owes as there was a a 20.67% interest sum added to his payment plan with the company.</span>
