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Homework answers / question archive / As of 11/20/2020, The Walt Disney Company (ticker: DIS) had a beta of 1
As of 11/20/2020, The Walt Disney Company (ticker: DIS) had a beta of 1.11 and an expected return of 13.93%. If the expected market return is 12.61%, what is the risk-free rate?
answer choices:
-0.07%
0.61%
-2.85%
1.19%
Calculation of Risk Free Rate (Rf) by using CAPM Model :
Ke = Rf + β( Rm - Rf )
Where,
Ke = Expected Return = 13.93% = 0.1393
β = Beta = 1.11
Rm = Market Return = 12.61% = 0.1261
13.93 = Rf + 1.11 ( 12.61 - Rf )
13.93 = Rf + 13.9971 - 1.11Rf
13.93 + 1.11Rf = Rf + 13.9971
1.11Rf = Rf + 13.9971-13.93
1.11Rf = Rf + 0.0671
1.11rf - Rf = 0.0671
0.11Rf = 0.0671
Rf = 0.0671/0.11
Rf = 0.61%
Risk Free Rate is 0.61%
