[amp_mcq option1=”3.00%” option2=”19.00%” option3=”0.72%” option4=”1.38%” correct=”option1″]
The correct answer is A. 3.00%.
The risk-free rate of return is the rate of return that an investor expects to earn on an investment with no risk. It is often used as a benchmark for other investments, such as stocks and bonds. The risk-free rate of return can be calculated by looking at the yield on government bonds.
In this case, the required return is 11% and the premium for risk is 8%. This means that the investor expects to earn a return of 11% on the investment, plus an additional 8% to compensate for the risk involved. The risk-free rate of return can be calculated by subtracting the premium for risk from the required return. In this case, the risk-free rate of return is 11% – 8% = 3.00%.
Option B is incorrect because it is the required return, not the risk-free rate of return. Option C is incorrect because it is the risk premium, not the risk-free rate of return. Option D is incorrect because it is the risk-free rate of return plus the risk premium, not the risk-free rate of return itself.