Respuesta :
Answer:
The risk-free rate of return expected on a Norwegian security is 6.9%
Explanation:
Here, we are expected to calculate the risk-free rate of return on a Norwegian security.
We use the mathematical formula as follows;
Risk-free home - Expected inflation home = Risk free foreign - Expected inflation foreign
Kindly note that home refers to the US while foreign refers to Norway
From the question, we identify the following terms;
Risk-free home = 4%
Expected inflation home = 3.1%
Risk-free foreign = ?
Expected inflation foreign = 6%
Now, plugging these values, we have;
4% - 3.1% = ? - 6%
0.9% = ?- 6%
6% + 0.9% = ?
? = 6.9%
Thus, the risk-free rate of return expected on a Norwegian security is 6.9%
The risk-free asset in the U.S. is yielding 4 percent.
Risk-free rate in US - Inflation rate = Risk free rate in Norway - Inflation rate
4% - 3.1% = Risk free rate - 6%
Risk-free rate in Norway = 0.9% + 6%
Risk-free rate in Norway = 6.9%
So, the risk-free rate of return expected on a Norwegian security is 6.9%.
What is risk-free return?
The risk-free rate of return is the theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.
A risk-free asset is one that has a certain future return and virtually no possibility of loss.
Thus, the risk-free rate of return expected on a Norwegian security is 6.9%.
Learn more about risk-free return here,
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