Asked by
matthew kopchia
on Nov 28, 2024
Verified
A stock has an expected return of 12.60%.Its beta is 1.49 and the risk-free rate is 5.00%.What is the market risk premium?
A) 5.10%
B) 5.23%
C) 5.36%
D) 5.49%
Market Risk Premium
The additional return expected by investors for accepting the higher risk associated with the equity market over a risk-free asset.
Risk-Free Rate
The risk-free rate is the theoretical rate of return of an investment with zero risk, often represented by the yield of a short-term government bond.
Beta
A measure of a stock's volatility in relation to the overall market, used in the Capital Asset Pricing Model to determine the expected return of an investment.
- Gain a deep understanding of the Capital Asset Pricing Model (CAPM) and its applications in figuring out required returns on stocks.
Verified Answer
KC
Learning Objectives
- Gain a deep understanding of the Capital Asset Pricing Model (CAPM) and its applications in figuring out required returns on stocks.