You expect a share of EconNews.Com to sell for $65 a year from now.If you are willing to pay $61.06 for one share of the stock today, you expect a dividend payment of $4, and the rate of return on safe assets is 5%, how much is your risk premium?

Question

Quizplus · Accepted Answer

The expected return is calculated as (65 + 4 - 61.06) / 61.06 = 12.9%. The risk-free rate is 5%, so the risk premium is 12.9% - 5% = 7.9%, which rounds to 8.0%.

You Expect a Share of EconNews