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%
B) 22.38%
C) 25.72%
D) 29.38%

Question

Quizplus · Accepted Answer

Netflicks' risk premium can be calculated using the capital asset pricing model (CAPM):
Risk Premium = (Expected Market Return - Risk-Free Rate) x Beta
= (0.132 - 0.07) x 3.61
= 0.0621 or 6.21%
Therefore, the answer is B) 22.38%, which is closest to 6.21%.