The two-factor model on a stock provides a risk premium for exposure to market risk of 12%, a risk premium for exposure to silver commodity prices of 3.5%, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity prices is also 1. What is the expected return on the stock?
A) 11.6%
B) 13%
C) 15.3%
D) 19.5%

Question

Quizplus · Accepted Answer

Return = 3.5 + 4 + 12 = 19.5%

The Two-Factor Model on a Stock Provides a Risk Premium