The annual return on the s&p 500 index was 12.4 percent. The annual t-bill yield during the same period was 5.7 percent. Then the market risk premium during that year will be 6.7 percent.
The marketplace risk premium is the distinction between the expected go back on a market portfolio and the chance-unfastened price. The marketplace threat top fee is the same as the slope of the SML, a graphical representation of the CAPM.
To calculate market risk premium use the formula
Market risk premium = ( Market rate of return ) - ( Risk-free rate of return )
Market risk premium = 12.4 - 5.7 = 6.7%
Therefore Market risk premium is 6.7 percent ( 6.7 % )
The annual return back is the go-again that funding presents over a period of time expressed as a time-weighted annual percent. Assets of returns can embody dividends, returns of capital, and capital appreciation.
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