The expected return for Zbrite stock calculated using the CAPM is 15.5 percent. The risk-free rate is 3.5 percent and the beta of the stock is 1.2. Calculate the implied market risk premium.
A) 5.5 percent
B) 6.5 percent
C) 10.0 percent
D) 15.5 percent
E) 12.0 percent

Question

Quizplus · Accepted Answer

The formula for CAPM is: 
Expected Return = Risk-Free Rate + Beta * Market Risk Premium 
Substituting the given values: 
15.5% = 3.5% + 1.2 * Market Risk Premium 
Market Risk Premium = (15.5% - 3.5%) / 1.2 = 10% 
Therefore, answer is C.

The Expected Return for Zbrite Stock Calculated Using the CAPM