Ask Question
11 December, 21:45

The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return is 3.7 percent. What is the expected market risk premium?

+2
Answers (1)
  1. 12 December, 00:49
    0
    7.90%

    Explanation:

    For this question, we use the Capital Asset Pricing Model formula that is presented below:

    Expected rate of return = Risk-free rate of return + Beta * (Market rate of return - Risk-free rate of return)

    where,

    The Market rate of return - Risk-free rate of return) is also known as the market risk premium

    So, the expected market risk premium is

    14.29% = 3.7% + 1.34 * expected market risk premium

    10.59% = 1.34 * expected market risk premium

    So, the expected market risk premium is 7.90%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return is 3.7 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers