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What is the equilibrium market risk premium

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The risk free rate equals Rf = 3%, and the return on the market portfolio has expectation E[RM] = 10% and standard deviation σM = 16%. Assume the CAPM assumptions hold.

(a) What is the equilibrium market risk premium?

(b) Consider two assets with realized returns of 14% and 21% in a given year. What can we say about the relative betas of these stocks?

(c) Consider two assets with expected returns of 14% and 21% in a given year. What can we say about the relative betas of these stocks?

Reference no: EM132816352

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