Assuming a 15% risk-free rate, cost of equity of 25% and a beta of 1, what is the excess market premium?



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how is the answer 10%????can somebody explain the formula used here??

1 Answer(s)


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Cost of equity= Risk free rate + Beta*(market return-risk free rate)

where,
Beta*(market return-risk free rate)= excess market premium
Therefore,
Excess market premium= cost of equity- risk free rate
= 25%-15%
= 10%