The beta for General Motors (GM) is 0.5, the risk-free rate is 4%, and the market return is 9%. What is GM's risk-adjusted discount rate?

A) 4%
B) 4.5%
C) 6.5%
D) 9%

Question

The beta for General Motors (GM)  is 0.5, the risk-free rate is 4%, and the market return is 9%. What is GM's risk-adjusted discount rate?A)  4%B)  4.5%C)  6.5%D)  9%

Leeanna Mills · Accepted Answer

Final Answer : C, Explanation :  The formula for the risk-adjusted discount rate is:Risk-adjusted discount rate = Risk-free rate + Beta x (Market return - Risk-free rate)Substituting the given values, we get:Risk-adjusted discount rate = 4% + 0.5 x (9% - 4%) = 4% + 0.5 x 5% = 6.5%Therefore, the correct answer is C) 6.5%.

The beta for General Motors (GM) is 0.5, the risk-free rate is 4%, and the market return is 9%. What is GM's risk-adjusted discount rate?

A) 4%
B) 4.5%
C) 6.5%
D) 9%

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