Compute the risk premium for the stock of Omega Tools if the risk-free rate is 6%, the expected market return is 12%, and Omega's stock has a beta of 0.8.
A) 10.8%
B) 4.8%
C) 48.0%
D) 16.8%

Question

Quizplus · Accepted Answer

The risk premium for a stock can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Risk Premium = Beta * (Market Return - Risk-Free Rate). For Omega Tools, this would be 0.8 * (12% - 6%) = 0.8 * 6% = 4.8%.

Compute the Risk Premium for the Stock of Omega Tools