Problem 8-08 Two stocks, A and B, have beta coefficients of 0.9 and 1.4, respectively. If...
Problem 8-08
Two stocks, A and B, have beta coefficients of 0.9 and 1.4, respectively. If the expected return on the market is 14 percent and the risk-free rate is 6 percent, what is the risk premium associated with each stock? Round your answers to two decimal places.
The risk premium for stock A: %
The risk premium for stock B: %
Homework Answers
Stock A:
Risk premium = Beta(market return - risk free rate)
Risk premium = 0.9(14% - 6%)
Risk premium = 0.072 or 7.20%
Stock B:
Risk premium = Beta(market return - risk free rate)
Risk premium = 1.4(14% - 6%)
Risk premium = 0.112 or 11.20%
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