9 27) Jerilu Markets has a beta of 1.09. The risk-free rate of return is 3.18...
9 27) Jerilu Markets has a beta of 1.09. The risk-free rate of return is 3.18 percent and the market rate of return is 11.27 percent. What is the risk premium on this stock?
A) 3.47 percent B) 7.03 percent C) 8.82 percent D) 8.99 percent E) 7.80 percent Answer: C
I understand the answer is: Risk premium = 1.09(.1127 − .0318) Risk premium = .0882, or 8.82%
However, I dont understand why is beta involved in this equation because shouldnt risk premium just be market expected returns - risk free rate.
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