Answer:
16.57%
Explanation:
According to the capital asset pricing model, the return on a stock is the risk-free rate plus the equity risk premium .
The risk-free rate is the minimum rate rate of return that an investor can earn by investing a risk-free security like treasury bill.
The equity risk premium is the additional return over and above the risk-free rate which an investor expect to earn on stock investment by taking additional risk. This is so because stocks are riskier than treasury bills.
The risk premium = expected return - risk-free rate
For a small-company, we find the difference between the expected return and the risk-free rate
Risk premium on a small company = 17.05 - 1.48
= 16.57%
