What is the risk premium for a stock that has a Beta of 2.5, while treasury...

What is the risk premium for a stock that has a Beta of 2.5, while treasury bills are yielding 1% and the return on the market portfolio is 11%?

Expert Solution

Required return on stock = Risk free rate + Beta * (Market return - Risk free rate)

= 1% + 2.50*(11% -1%)

= 1% + 25%

= 26%

Risk premium of stock = Required return on stock - Risk free rate

= 26% -1%

= 25%

jeff jeffy answered 2 years ago

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