Asset A has an expected return of 12% and a beta of 1.05. The risk-free rate is 4%. What is the market risk premium?
A) 7.6%
B) 8.2%
C) 9.6%
D) 10.2%
E) 11.6%

Question

Quizplus · Accepted Answer

The market risk premium can be calculated using the Capital Asset Pricing Model (CAPM) formula: Expected Return = Risk-Free Rate + Beta * (Market Risk Premium). Rearranging the formula to solve for the Market Risk Premium gives: Market Risk Premium = (Expected Return - Risk-Free Rate) / Beta. Plugging in the given values: (12% - 4%) / 1.05 = 7.6%.

Asset a Has an Expected Return of 12% and a Beta