Apple Inc

Finance Oct 12, 2020

Apple Inc. has a Beta equal to 1.8. The average return for the market portfolio has been 14%. If the required rate of return for Apple Inc. is 23.6%, what is the current risk free rate?

Expert Solution

Computation of the current risk free rate:-

Required rate of return = Risk free rate + Beta * (Market return - Risk free rate)

23.6% = Risk free rate + 1.8 * (14% - Risk free rate)

23.6% = Risk free rate + 25.2% - (1.8 * Risk free rate)

0.8 * Risk free rate = 25.2% - 23.6%

Risk free rate = 1.6% / 0.8

= 2%

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