Question: Is step 4 correct? I believe risk premium is calculated by subtracting the risk free rate by the expected value of the risky asset. In

Is step 4 correct? I believe risk premium is calculated by subtracting the risk free rate by the expected value of the risky asset. In this case, it would be 12.9% - 7% = 5.9%.

C. Market risk premium refers to the return that an investor earns over the risk-free rate by investing in the market and bearing the volatility rate of market. 11.7%($1000117100)reasonbeingthe Market return or standard deviation is to be understood as standard deviation is to be understood 117 as dollar which is of investment of $1000 and hence market return is understood as 11.7% Formula for calculation of Market risk premium is as follows: Market Risk Premium = Market Return or Volatility (Rm)RiskFreeRate(Rf) Calculation of Market risk premium is as follows: MarketRiskPremium=11.7%7%=4.7% Therefore, the market risk premium is

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Complete requirements 1 through 3 of Jane's Skateboards for the first milestone of the course project. You have the option of using either the T-Accounts tab for posting Journal Entries or the...

Please see the attached file. Here are 9 questions and 8 answers. You have to make paraphrase for all 8 answers. Because 8 answers are written by my class mate. Please wire down Q8 answers. I need...

I have attached the question plesae do all the question show working step by step for all the question. JULY 2012 You must answer ALL the questions. (Total 100 marks) Modern Equipment Company (MEC)...

2. SECURITY VALUATION PROCESS AND MODELS Each security valuation represents a process that consists of few steps. First step assumes understanding and evaluation of an industry as a whole, assessment...

Unigene Labs has existing assets that generate an EPS of $5 per year, which is expected to remain constant if the firm does not invest except to maintain exiting assets. Unigene is all-equity...

Question 1 using CAPM: A stock has a of 1.2. The equity risk premium is 6 percent and the risk free rate is 2 percent. What is the rate of return required by investors in the stock? Question 2 using...

Please help with this Financial Case Study. Answer those 5 questions. Alliance Concrete: Just One More Thing1 Introduction It is early 2006, and Martin Harris, Alliance Concrete's new CFO, is asked...

Pliz Help. 5. Consider a simple economy in which only two goods are produced and sold: pizza and beer: The prices and quantities produced of these two goods over a th ree-year period are shown in the...

Micro quiz!!! 24. Unigene Labs has existing assets that generate an EPS of $5 per year, which is expected to remain constant if the firm does not invest except to maintain exiting assets. Unigene is...

You helped me a couple of weeks ago. I was wondering if i could setup a time for tomorrow that you could be available to help me with some questions. I will pay $20 per question. They are short and I...

i need some one toanswering these three questions. make sure to include apa format for the information pretty straight forward. Attached below are the chapters. Chapter 7: 7.2 #2 (p. 168) Chapter 8:...

First City Real Estate executives wish to build a model to predict sales prices for residential properties. Such a model will be valuable when collaborating with potential sellers who might list...

Following is a list of cost system characteristics and sample companies. Match each to either job order costing or process costing. a. Companies that produce small quantities of many different...

Which one of the following stock index futures has a multiplier of $ 5 0 times the index value? Multiple Choice NASOMO 1 0 0 Nhkel 5 8 9 5 0 0 ( E - mini ) Russell 2 0 0 0 DAK - 3 0

Use the Tax Rate Schedules to determine the tax liability for each of the following cases. Required: a . Single taxpayer, taxable income of $ 3 0 , 9 1 6 . b . Single taxpayer, taxable income of $ 9...