A stock with a beta of 2.0 has an expected rate of return of 13.15%. the risk-free rate in the market is 3.30%. what is the market premium? assume capm is true.

The value of a security is determined by the Capital Asset Pricing Model, or CAPM, based on the projected return in relation to the risk investors take when purchasing that security.

The formula for CAPM:

Following is the CAPM formula:

Beta i + R f = E(R i)

(E(R {m})-R {f})

The CAPM formula is:

The expected return on investment is equal to the risk-free rate plus the beta (or risk) of the investment multiplied by the market's anticipated return minus the risk-free rate (the difference between the two is the market risk premium).

The answer is calculated as:

Rf plus beta Equals CAPM* (Rm-Rf) E(r) equals 13.5% 3.3 percent

Rf Beta = ? Rm-Rf, sometimes referred to as market risk premium,
is equal to 8.8%. 13.5 % = 3.3 + beta (8.8 percent )
beta = 13.5 percent - 3.3 percent (8.8 percent )
10.2% is equal to beta (8.8 percent )
Beta = 10.2% / 8.8% = 1.15909

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