Suppose you observe the following information: The stock of Besl Baseball Statistics has a beta of...

Suppose you observe the following information: The stock of Besl Baseball Statistics has a beta of 0.3, and an expected return of 5.25%. The stock of Bannon Buybacks has a beta of 1.2, and an expected return of 16.5%. Based on the Capital Asset Pricing Model, what is the market risk premium?

Solutions

Expert Solution

Using CAPM model,

0.0525 = Rf + 0.30(Market Risk Premium)

0.165 = Rf + 1.20(Market Risk Premium)

So,

0.165 = 0.0525 - 0.30(Market Risk Premium) + 1.20(Market Risk Premium)

Market Risk Premium = 12.50%

jeff jeffy answered 2 years ago

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