Question

a stock has a beta of 1.58 and an expected return of 16.2%. the risk-free rate is 3.8%. what is the market risk premium? group of answer choices 12.50% 10.01% 7.85% 11.72%

Answer 1

Cost of Equity as per CAPM = Risk Free Rate + (Beta x Market Risk Premium)

or, 16.2% = 3.8% + Market Risk Premium * 1.58      

or, Market Risk Premium x 1.58 =  12.4%        

or, Market Risk Premium =  7.8481%

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