The expected market return is 9 percent.The risk-free rate is 1 percent,and XYZ Co.has a beta of 1.4.XYZ's 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 the expected market return minus the risk-free rate, multiplied by the beta of the stock. In this case, the risk premium is (9% - 1%) * 1.4 = 11.2%.

The Expected Market Return Is 9 Percent