with a calculating machine
The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
Expected return= risk free rate + Risk premium = 11 rate of return on stock= Riskfree rate + beta x( expected market return- risk free rate)
.14=.05+1.5(market return-.05) .09=1.5market return-.075 .165/1.5=market return .11 or 11%=market return
The risk free rate of return is a rate an investor will expect with zero risk over a specified period of time. In order to calculate risk free rate you need to use CAPM model formula ra = rrf + Ba (rm-rrf), where rrf is risk free rate, Ba is beta of security and Rm is market return.
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?
11.84%
13.3
NPV/Initial Cost of Investment
ask someone who knows
by using the Net present value calculations.
yield
I'm going to assume that you mean the risk free rate is 4%, or 0.04, and the market rate of return is 14%, or .14. If that is the case, then we solve: Market Rate of Return = (Risk Free Rate) + Beta * (Market Risk Premium) 0.14 = 0.04 + 1.2 * MRP 0.1 = 1.2 * MRP 0.1 / 1.2 = MRP 0.08333... = MRP The Market Risk Premium would be approximately 8.33% This is an example of the Capital Asset Pricing Model, or CAPM.