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Rate of return using the Capital Asset Pricing Model (CAPM) framework
The Rate of return using the Capital Asset Pricing Model is calculated as follows
Rate of return = Risk-free rate + Beta[Market rate of return – Risk-free rate]
= Rf + Beta[Rm – Rf]
= 4.00% + 1.20[6.00% - 4.00%]
= 4.00% + [1.20 x 2.00%]
= 4.00% + 2.40%
= 6.40%
“Hence, the Rate of return using the Capital Asset Pricing Model (CAPM) framework will be 6.40%”
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