The current risk-free rate is 6.2 percent. A stock has an expected return if 10.8 percent and a beta of 0.90. What is the market risk premium?
A) 13.21%
B) 6.57%
C) 12.83%
D) 5.11%
E) 8.59%

Question

Quizplus · Accepted Answer

The market risk premium is calculated using the formula: Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Rearranging gives Market Risk Premium = (Expected Return - Risk-Free Rate) / Beta = (10.8% - 6.2%) / 0.90 = 5.11%.

The Current Risk-Free Rate Is 6