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Consider a stock with expected return of 12%. Treasury bills currently yield 4%. The expected return...

Consider a stock with expected return of 12%. Treasury bills currently yield 4%. The expected return on the market portfolio is 7%. What is the risk premium on this stock? Please explain do not use excel sheets.

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Answer #1

Risk premium of stock =(Expected Return -Risk free rate) =(12%-4%) =8%
Market Risk Premium =(Market Return -Risk free rate) =7%-4% =3%

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