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How to find the required rate of return? 10 points?
MFI Inc has a beta of .86. If the expected market return is 11.5% and the risk free rate is 3%, what is the appropriate required return of MFI using CAPM? How do you find the risk free rate which is 7.5? I tried dividing, multiplying .86 and 11.5 but nothing.
1 Answer
- PrivateBankerLv 77 years agoFavorite Answer
per CAPM...
E(r) = RFR + ß(Rmkt - RFR)
E(r) = 3% + 0.86(11.5% - 3%)
= 3% + 7.31%
= 10.31%
The risk free rate is GIVEN at 3%. Not sure I understand your question about the RFR being 7.5%.
