Netflicks, Inc. has a beta of 3.61. If the market return is expected to be 13.2 percent and the risk-free rate is 7 percent, what is Netflicks' risk premium?
A)20.91 percent
B)22.38 percent
C)25.72 percent
D)29.38 percent

Question

Quizplus · Accepted Answer

Using the Capital Asset Pricing Model (CAPM):
Netflicks' risk premium = (market return - risk-free rate) x beta
= (13.2% - 7%) x 3.61
= 22.38%
Therefore, the answer is choice (B) 22.38 percent.