The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return i

Question

3 years ago

11

s 3.7 percent. What is the expected market risk premium?

1 answer:

n200080 [17] · Answer 1 · 2022-04-29T00:23:16+03:00

Answer:

7.90%

Explanation:

For this question, we use the Capital Asset Pricing Model formula that is presented below:

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

where,

The Market rate of return - Risk-free rate of return) is also known as the market risk premium

So, the expected market risk premium is

14.29% = 3.7% + 1.34 × expected market risk premium

10.59% = 1.34 × expected market risk premium

So, the expected market risk premium is 7.90%