Question

Porter Inc's stock has an expected return of 13.25%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 2.00%, what is the market risk premium

Answer 1

Answer:market risk premium=9.00%

Step-by-step explanation:

Using the CAPM,Capital Asset Pricing Model, The expected

return on stock is given as

Expected Return = Risk free Return + Market Risk Premium X Beta

Where

Expected Return =13.25%

Risk free Return= 2.00%,

Beta=1.25

market risk premium=?

13.25 = 2.00 + market risk premium X 1.25

13.25- 2.00 = market risk premium X 1.25

11.25%/1.25%=market risk premium

market risk premium=9.00%