The historical returns for the past three years for Stock B and the stock market portfolio are: Stock B: 24%,0%,24%; Market portfolio: 10%,12%,20%.If the risk-free rate is 4%,calculate the expected market risk premium.

Question

Quizplus · Accepted Answer

The expected market risk premium is calculated as the average return of the market portfolio minus the risk-free rate. The average return of the market portfolio is (10% + 12% + 20%) / 3 = 14%. The risk-free rate is 4%, so the expected market risk premium is 14% - 4% = 10%.

The Historical Returns for the Past Three Years for Stock