If a stock with .40 beta has a risk premium of 11%, find out the market's...

If a stock with .40 beta has a risk premium of 11%, find out the market's return assuming zero risk-free rate.

a. none of the above

b. 27.5%

c. 11.4%

d. 4.4%

Expert Solution

Stock risk premium = Market risk premium x beta

11% = market risk premium x 0.40

Therefore market risk premium = 27.5%

Market Return = Market risk premium + Risk Free rate

Market Return = 27.50% + 0%

Market Return = 27.50%

Therefore option b 27.50% is correct option

jeff jeffy answered 2 years ago

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