Question

Nystrand Corporation's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 5.00%, what is the market risk premium?a. 5.80%b. 5.95%c. 6.09%d. 6.25%e. 6.40%

Answer 1

Answer:

a. The market risk premium is 5.80%

Explanation:

Expected rate=risk free rate+Beta*market risk premium

12.25=5+1.25*market risk premium

market risk premium=(12.25-5)/1.25

Market risk premium is the difference between the expected return on a market portfolio and the risk-free rate.

=5.8%