Computing numerical value of the equilibrium risk premium

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Computing numerical value of the equilibrium risk premium

Given the following information, Rf = 0.06, E(RM) = 0.12, σM = 0.15, answer the following questions:

(a) What is the numerical value of the equilibrium risk premium (that is, the excess return on the market portfolio)?

(b) What is the equilibrium expected return on a risky asset with β of 1.2? with β of 0.6?

(c) Suppose a stock has a β of 1.2. could this stock have a return of .10 in a given year?

(d) What is the β of a security with an equilibrium expected return of 0.03?

Is it possible in equilibrium for the expected return on a risky security to be less than the risk-free rate?

Reference no: EM1315425

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