Question

what is the risk premium for idaho bakery stock if the stock has a beta of 1.57, the expected return on the market is 11.15 percent, the risk-free rate is 4.62 percent, and inflation is 3.81 percent?(round the value to 100th decimal and please enter the value only without converting it to a decimal format. if the answer is 8.55%, enter 8.55)

Answer 1

The risk premium for Idaho Bakery stock is calculated using the CAPM formula, which results in a risk premium of 10.25%.

Step-by-step explanation:

The risk premium for Idaho Bakery stock, which has a beta of 1.57, can be calculated using the Capital Asset Pricing Model (CAPM). According to CAPM, the risk premium is the expected return on the market minus the risk-free rate, adjusted for the stock's volatility as measured by its beta.

The formula for calculating the risk premium is:

Risk Premium = (Beta × (Expected Market Return - Risk-Free Rate))

In this case:

Risk Premium = (1.57 × (11.15% - 4.62%)) = 1.57 × 6.53% = 10.25%

Therefore, the risk premium for Idaho Bakery stock is 10.25%.