E connect Equities and Investment Analysis FIN303 Question 7 (of 7) 0.00 points

Question

E connect Equities and Investment Analysis FIN303 Question 7 (of 7) 0.00 points Nyrstar and Exmar are two Belgian industrial stocks. Suppose there are no arbitrage opportunities left and that there is only one risk factor, ie. the systemic risk. Nyrstar has a beta of 1.7 and an expected return of 15%. Exmar has a beta of 1.3 and an expected return of 12%, what will be the riskfree rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risk-free rate References eBook & Resources Worksheet Check my work 0 FI : F2 F3 F4 FS F6 F7

Explanation / Answer

Expected return (CAPM) = Rf+×Rp

Rf is risk free return

Rp is risk premium

Rf+1.70×Rp = 15%   (1)

Rf+1.30×Rp = 12%   (2)

Do (1)-(2)

0.40×Rp = 3%

Market risk premium, Rp = 7.50%

Take, Rf+1.70×Rp = 15%

Rf+1.70×7.50% = 15%

Risk free rate of return, Rf = 2.25%

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