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13 May, 22:39

The Elvis Alive Corporation, makers of Elvis memorabilia, has a beta of 2.35. The return on themarket portfolio is 12%, and the risk-free rate is 2.5%. According to CAPM, what is the riskpremium on a stock with a beta of 1.0?

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  1. 13 May, 23:53
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    Risk-free rate (Rf) = 2.5%

    Market return (Rm) = 12%

    Beta (β) = 1.0

    Risk-premium = Market return - Risk-free rate

    = 12 - 2.5

    = 9.5%

    Explanation:

    Risk-premium is the difference between market return and risk-free rate.
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