question archive The expected rate of return of a security is 21
The expected rate of return of a security is 21
Subject:FinancePrice:2.86 Bought5
The expected rate of return of a security is 21.85%. If the risk-free interest rate is 3% and the expected rate return of the market is 16%, what is the risk index of that security?
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Risk index or Beta of the security will be calculated using Capital Asset pricing model-
Expected rate of return= risk free rate+beta (market return - risk free rate)
21.85= 3+ Beta(16-3)
Beta= (18.85/13)= 1.45
Hence it can be said that risk index of that particular security is 1.45.
