FIN300 Inc's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the risk-free rate (R') is 5.00%, what is the market risk premium? (Hint: I am asking for Market Risk Premium term not Market Expected Return term. While Market Expected Return is denoted by Rm, Market Risk Premium is denoted as (Rm-R))
FIN300 Inc's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the risk-free rate (R') is 5.00%, what is the market risk premium? (Hint: I am asking for Market Risk Premium term not Market Expected Return term. While Market Expected Return is denoted by Rm, Market Risk Premium is denoted as (Rm-R))
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:FIN300 Inc's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the
risk-free rate (R') is 5.00%, what is the market risk premium?
(Hint: I am asking for Market Risk Premium term not Market Expected Return term. While
Market Expected Return is denoted by Rm, Market Risk Premium is denoted as (Rm-R))
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