Stock Y has a beta of 0.8 and a required rate of return of 10%.What is the market risk premium if the risk-free rate is 5%?
A)5.00%
B)4.75%
C)6.25%
D)7.50%

Question

Quizplus · Accepted Answer

The market risk premium can be calculated using the formula: Required Rate of Return = Risk-Free Rate + Beta * Market Risk Premium. Rearranging gives Market Risk Premium = (Required Rate of Return - Risk-Free Rate) / Beta = (10% - 5%) / 0.8 = 6.25%.

Stock Y Has a Beta of 0