Question

The market has an expected rate of return of 11.4 percent. The current nominal expected yield on U.S. Treasury bills is 4.3 percent. The inflation rate is 2.2 percent. What is the market risk premium? (round answer to whole number with two decimal points: i.e., use 1.23 percent instead of 0.0123)

Answer 1

7.1%

Step-by-step explanation:

According to the CAPM,

expected market return = risk free rate + market risk premium

11.4% = 4.3% + market risk premium

market risk premium = 11.4% - 4.3% = 7.1%