The risk-free rate is 3.5 percent.What is the expected risk premium on this security given the following information?

A) 2.09 percent
B) 3.01 percent
C) 3.20 percent
D) 3.87 percent
E) 4.15 percent

Question

The risk-free rate is 3.5 percent.What is the expected risk premium on this security given the following information?

A) 2.09 percent 
B) 3.01 percent 
C) 3.20 percent 
D) 3.87 percent 
E) 4.15 percent

Quizplus · Accepted Answer

E(R) = (0.30 × 15) + (0.55 × 8) + (0.20 × -11) = 6.7 percent
Risk premium = 6.7- 3.5 = 3.20 percent

The Risk-Free Rate Is 3