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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

Respuesta :

tutorAnne

Answer:market risk premium=9.00%

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%

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