Answer:
6.97%
Explanation:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
12.8% = 3.6% + 1.32 × (Market rate of return - 3.6%)
12.8% - 3.6% = 1.32 × ( Market rate of return - 3.6%)
9.2% ÷ 1.32 = ( Market rate of return - 3.6%)
So, ( Market rate of return - 3.6%) would be 6.97%
The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.
