The market risk premium is 8%. The market variance is 20%. The variance of asset XYZ...
The market risk premium is 8%. The market variance is 20%. The variance of asset XYZ is 40%. The covariance between asset XYZ and the market is 10%. According to the CAPM, what should the risk premium of asset XYZ be?
Homework Answers
Beta of XYZ = 
= 0.10 / 0.40 = 0.25
Risk Premium = Beta * market Risk Premium
= 0.25 * 8%
= 2%
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