A stock has an expected return of 12.25 percent. The beta of the stock is 1.15 and the risk-free rate is 5 percent. What is the market risk premium?
A) 1.30%
B) 6.50%
C) 15.00%
D) 6.30%
E) 7.25%

Question

Quizplus · Accepted Answer

The market risk premium is the difference between the expected return on the stock and the risk-free rate. In this case, the expected return on the stock is 12.25 percent and the risk-free rate is 5 percent, so the market risk premium is 12.25 percent - 5 percent = 7.25 percent.

A Stock Has an Expected Return of 12