Porter Inc's stock has an expected return of 13.25%,a beta of 1.25,and is in equilibrium.If the risk-free rate is 2.00%,what is the market risk premium? Do not round your intermediate calculations.
A) 7.11%
B) 8.91%
C) 10.17%
D) 9.00%
E) 7.29%

Question

Quizplus · Accepted Answer

The expected return of a stock in equilibrium is calculated using the Capital Asset Pricing Model (CAPM): Expected Return = Risk-Free Rate + Beta * Market Risk Premium. Rearranging the formula to solve for the Market Risk Premium gives: Market Risk Premium = (Expected Return - Risk-Free Rate) / Beta. Substituting the given values: Market Risk Premium = (13.25% - 2.00%) / 1.25 = 9.00%.

Porter Inc's Stock Has an Expected Return of 13