The expected market return is 9 percent. The risk-free rate of return is 1 percent, and XYZ Co. has a beta of 1.4. The risk premium is
A) 8 percent.
B) 11.2 percent.
C) 12.2 percent.
D) 10.3 percent

Question

Quizplus · Accepted Answer

The risk premium is calculated as (expected market return - risk-free rate) multiplied by beta. Therefore, the risk premium is (9-1) x 1.4 = 11.2%. Thus, the correct choice is B, which represents 11.2 percent.

The Expected Market Return Is 9 Percent