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Project A has a beta of 1.4 and an expected rate of rate of return of...

Project A has a beta of 1.4 and an expected rate of rate of return of 14.2%. Project B has a beta of 0.7 and an expected rate of return of 8.7%. What is the risk-free rate?

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Answer #1

14.2%=risk free*(1-1.4)+1.4*market

8.7%=risk free*(1-0.7)+0.7*market

Hence, risk free rate=3.20%

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