What Is the Expected Risk-Free Rate of Return If Asset

question 17

Multiple Choice

What is the expected risk-free rate of return if Asset X, with a beta of 1.5, has an expected return of 20 percent, and the expected market return is 15 percent?

• A) 5.0%
• B) 7.5%
• C) 15.0%
• D) 22.5%

---

Definitions:

Expected Market Return

The anticipated average rate of return on an investment portfolio or a market index over a certain period, based on historical data and market conditions.

Risk-Free Rate

The return on an investment with no risk of financial loss, often represented by government bonds.

Beta

A measure of a stock's volatility in relation to the overall market; indicates the relative risk of the investment.

Expected Rate of Return

The profit or loss one anticipates on an investment, considering all potential outcomes and their likelihoods.