Answer:
The risk free will be 3.82%
Explanation:
We post the CAPM formula and how given data
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free ?
market rate 0.12
premium market market rate - risk free ?
beta(non diversifiable risk) 3.2
Ke = 0.3
Now we post the know values and solve for risk free
[tex]0.3= risk-free + 3.2 (0.12 - riskfree)[/tex]
[tex]0.3 = risk-free + 3.2 \times 0.12 - 3.2riskfree[/tex]
[tex]0.3 = 0.384 - 2.2riskfree[/tex]
[tex]0.3-0.384 = -2.2riskfree[/tex]
[tex]-0.084/-2.2= riskfree[/tex]
risk free = 0.0381818181818182 = 3.82%
