what is the excess market premium



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

10%

15% - Incorrect

25%

1%

i m anable to calculate

2 Answer(s)


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Yashodha, since this is a quiz question I cant give the answer here, but I am going to explain the general concept so you can calculate the answer.

This question is based on the concept of CAPM (Capital Asset Pricing Model). The formula is Ra=Rf+Beta(Rm-Rf), were Ra is cost of equity, Rf is the risk free rate, and Rm is the excess market prremium. Bu substituting these value you should get the answer.

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