A stock has an expected return of 12.60%.Its beta is 1.49 and the risk-free rate is 5.00%.What is the market risk premium?
A)5.10%
B)5.23%
C)5.36%
D)5.49%

Question

Quizplus · Accepted Answer

The expected return of the stock can be calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Rearranging to find the Market Risk Premium: Market Risk Premium = (Expected Return - Risk-Free Rate) / Beta = (12.60% - 5.00%) / 1.49 = 5.10%.

A Stock Has an Expected Return of 12