Question
How did we come up with the RPm of 0.105? also why did we divide 0.105 by beta instead of multiplying in this case? Port
How did we come up with the RPm of 0.105? also why did we divide 0.105 by beta instead of multiplying in this case?
Port Inc.'s stock has a required return of 12.5%, a beta of 1.25, and is in equilibrium. If the risk-free rate is 2%, what is the market risk premium?
= + ( )
( )= market risk premium, a.k.a.RPm
0.125 = 0.02 + (RPm)*1.25
0.105 = (RPm)*1.25
0.105= RPm
1.25
0.084 = RPm
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
Concise 6th Edition
324664559, 978-0324664553
