The risk-free rate is 3%. A market risk premium in finance and economic is used to measure how much the level of risk.
A risk premium means a measure of excess return that is used by an individual to compensate being subjected to an improved degree of risk. A risk premium is the common definition being the expected risky return less the risk-free return.
To find the amount of risk free rate, we can calculate it use this formula:
ER = rf + β (rm - rf)
Where,
ER = Expected Return = 14.7% = 0.147
rf = Risk free rate
β = beta = 1.3
rm = Return market = 12% = 0.12
Hence,
0.147 = rf + 1.3 (0.12 - rf)
0.147 = rf + 0.156 - 1.3rf
0.147 - 0.156 = -0.3 rf
-0.009 = -0.3 rf
rf = 0.03
Thus, the risk-free rate is 3%.
Learn more risk premium, here brainly.com/question/28235630
#SPJ4
