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    Market risk premium under CAPM

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    Analysts give Proctor & Gamble, the consumer products firm, an equity beta of 0.65. The risk-free rate is 4.0 percent. An analyst calculates an equity cost of capital for the firm of 7.9 percent using the capital asset pricing model (CAPM). What market risk premium is she assuming?

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    CAPM Formula

    Cost of Equity/Expected Return = Risk free rate + ...

    Solution Summary

    The solution computes market risk premium under CAPM for buying Proctor and Gamble.