I took this question before, and it is A) size in area.
Expectations not exceptions
The Law of Cosines is used to find the remaining parts of an oblique (non-right) triangle when either the lengths of two sides and the measure of the included angle is known (SAS) or the lengths of the three sides (SSS) are known. The Law of Cosines states: ... c2=a2+b2−2ab cosC .
Answer: 1.9%
Explanation:
First derive the Market return as this is needed in the Capital Asset Pricing Model by using the same model:
Required return = Risk free rate + Beta * ( market return - Risk free rate)
Using stock Y:
12.4% = Risk free rate + 1 * (market return - Risk free rate)
12.4% = Rf + market return - Rf
Market return = 12.4%
Use this to calculate the Risk free rate:
Stock Z:
8.2% = Rf + 0.6 * (12.4% - Rf)
8.2% = Rf + 7.44% - 0.6Rf
Rf - 0.6Rf = 8.2% - 7.44%
0.4Rf = 0.76%
Rf = 0.76% / 0.4
= 1.9%