Risk Premiums You own $14,000 of Diner's Corp stock that has a beta of 2.1. You also own $14,000 of Comm Corp (beta = 1.3) and $12,000 of Airlines Corp (beta = 0.6). Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?
A) 11.645%
B) 20.55%
C) 23.905%
D) 38.00%

Question

Quizplus · Accepted Answer

The total risk premium of the portfolio is calculated using the weighted average beta of the portfolio and the market risk premium. The portfolio beta is 1.35, and the market risk premium is 8.5% (15% - 6.5%). Thus, the total risk premium is 1.35 * 8.5% = 11.475%.

Risk Premiums You Own $14,000 of Diner's Corp Stock That