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The Elvis Alive Corporation, makers of Elvis memorabilia, has a beta of 2.35. The return on themarket portfolio is 12%, and the risk-free rate is 2.5%. According to CAPM, what is the riskpremium on a stock with a beta of 1.0?

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ahmedgodtrust

Answer:

Risk-free rate (Rf) = 2.5%

Market return (Rm) = 12%

Beta (β) = 1.0

Risk-premium = Market return - Risk-free rate

                       = 12  - 2.5

                       = 9.5%

Explanation:

Risk-premium is the difference between market return and risk-free rate.

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