Market risk premium under CAPM

Related BrainMass Solutions

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  If the risk-free rate is 4 percent, the market risk premium is 6 percent, and the market return on Stock B is 10.5 percent, (a) graph the security market line (SML) for Stock B.

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  The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security plus a risk premium.

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  of the market risk premium.

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  2 from equation 1 25%-14%=(1.4-0.7) x Market risk premium or 11% = 0.7 x Market risk premium or Market risk premium = 11% / 0.7 = 15.71% Substituting the value of market risk premium in Equation 1 For Merck