HealthEngine, has a beta of 2.35.The return on the market portfolio is 12%, and the risk-free rate is 2.5%.According to CAPM, what is the risk premium on shares with a beta of 1.0?
A)12.00%
B)22.33%
C)9.5%
D)14.5%

Question

Quizplus · Accepted Answer

Using the CAPM formula, we can calculate the expected return of a stock with a beta of 1.0:
Expected return = risk-free rate + beta x (market risk premium)
Expected return = 2.5% + 1.0 x (12% - 2.5%)
Expected return = 9.5%
Therefore, the risk premium on shares with a beta of 1.0 is 9.5%. Option C is the correct choice.

HealthEngine, Has a Beta of 2