The anticipated market return is 15 percent. The risk-free rate is 4 percent, and AB Co. has a beta equal to one-half of the market beta. Its risk premium is:

Name: The anticipated market return is 15 percent. The risk-free rate is 4 percent, and AB Co. has a beta equal to one-half of the market beta. Its risk premium is:
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Quizplus · Accepted Answer

The risk premium is calculated as Beta * (Market Return - Risk-Free Rate). Here, AB Co.'s beta is 0.5, so the risk premium is 0.5 * (15% - 4%) = 5.5%.

The Anticipated Market Return Is 15 Percent