Answer:
The risk premium on the market is 8%
Explanation:
In solving this example given, we define the method called market risk premium.
Market Risk Premium:
The market risk premium is the difference between the risk free rate and average market return . The market return is often estimated by the return on some market stock index, known as the S&P 500 index
Therefore we apply the capital asset pricing model to compute the market risk premium as follows:
The return of the market portfolio = 13%
The risk free rate =5%
market risk premium = market return - risk free rate
market risk premium = 13% - 5%
market risk premium = 8%
Answer:
Risk Premium on the market is 8%
Explanation:
Given beta = 3.25, Standard deviation = 27%, Market Return = 13%, Risk Free rate = 5% MRP=?
The risk premium on the market is the difference between the return on the market which is usually denoted by some stock market index return and the risk free rate
Market risk Premium = Market Return - Risk free rate
=13% - 5%
=8%
