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RideAnS [48]
4 years ago
8

Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a beta of 1.2 is 20%. What is t

he risk-free rate
Business
1 answer:
Hatshy [7]4 years ago
4 0

Answer:

Risk-free rate = 8%

Explanation:

<em>The Capital Asset pricing Model (CAPM) can be used to determined the beta. </em>

<em>According to the Capital Asset pricing Model the return on equity is dependent on the level of reaction of the the equity to changes in the return on a market portfolio.</em>

<em> These changes are captured as systematic risk. The magnitude by which a stock is affected by systematic risk is measured by beta.  </em>

Under CAPM, Ke= Rf + β(Rm-Rf)  

Rf-risk-free rate (treasury bill rate), β= Beta, Rm= Return on market.  

Using this model,  we can work out the risk free rate as follows:

DATA

Ke-20%

Rf- ?

β-1.2

Rm- 18%

substituting, we have

0.2= Rf +  1.2× (0.18-Rf )

0.2 = Rf + 0.216 - 1.2Rf

collecting like terms

1.2Rf-Rf= 0.216 - 0.2

0.2Rf = 0.016

Dividing both sides by 0.2

Rf =0.016/0.2=0.08

Rf = 0.08 × 100 = 8%

Risk-free rate = 8%

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Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.

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4 0
1 year ago
The NGO decided to give out brochures to the villagers about how they can protect themselves from water borne diseases. Since th
Naddik [55]

Answer:

B.

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Based on the scenario being described within the question it can be said that NGO has adapted the research technique of Copy Testing, in order to understand the education level of the audience. This technique field of research that focuses on determines an advertisement's effectiveness based on consumer responses, feedback, and behavior.

4 0
3 years ago
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Decentralized purchasing is the practice where individual, local purchasing departments throughout a single corporation make the
likoan [24]

Answer:

True

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3 0
3 years ago
An investment has the potential of earning you $5000 at a 20 percent probability $3000 at a 50 percent probability, and $2000 at
kap26 [50]

Answer:

The expected value of the investment is $3,100

Explanation:

In order to calculate the expected value of the investment we would have to make the following calculation:

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Therefore, The expected value of the investment = ($5,000*0.20) + ($3,000* 0.50) + ($,2000* 0.30)

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7 0
3 years ago
An american retail chain started doing business in india by forming a _____ with one of india’s leading business groups.
riadik2000 [5.3K]

An american retail chain started doing business in india by forming a<u> "joint venture" </u>with one of india’s leading business groups.


A Joint Venture (JV) is a helpful endeavor went into by at least two business elements with the end goal of a particular task or different business movement. The purpose behind a joint endeavor is typically some particular task.  

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7 0
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