The common stock of United Industries has a beta of 1.34 and an expected return of...

Question

Question

The common stock of United Industries has a beta of 1.34 and an expected return of 14.29

percent. The risk-free rate of return is 3.7 percent.

a. What is the market risk premium?

7.90%

b. What is the expected return on the market?

11.60%

Please check the answers and show all work typed out. No excel or grid style please as I am on mobile.

business finance

Answer 1

Answer #1

a. E(r) = 0.1429 = 0.037 + 1.34(Market risk premium)

Market risk premium = 7.90%

b. Expected return on the market = 7.90% + 3.7% = 11.60%

Answer 2

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