Question: How would you compare and contrast Average Risk Premium and CAPM for identifying the expected rate of return of a risky asset? Noting that your

How would you compare and contrast Average Risk Premium and CAPM for identifying the expected rate of return of a risky asset? Noting that your answer should include the following:

1. Definition of the Average Risk Premium and CAPM.

2. Comparison between Average Risk Premium and CAPM regarding their practical usages based on a company / asset.

3. Comparison between Average Risk Premium and CAPM with respect to their approach to risk.

4. Comparison between Average Risk Premium and CAPM with respect how to calculate rate of return for a risky asset.

5. Illustration based on numerical example the difference between the Average Risk Premium and CAPM..

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