, FIN4801 ASSIGNMENT 2 2026 ANSWERS - DUE DATE: 2026
QUESTION 1
Aspect Answer
The market risk premium is the additional return that
investors expect to earn for investing in the market portfolio
Market Risk Premium (CAPM)
instead of a risk-free asset. It is calculated as the difference
between the expected market return and the risk-free rate.
CAPM Formula Expected Return (Ri) = Rf + βi [(Rm − Rf)]
Market Risk Premium in the
(Rm − Rf) = Market Risk Premium
Formula
Where:
Symbol Meaning
Ri Expected return on an investment
Rf Risk-free rate
βi Beta of the investment
Rm Expected market return
Rm − Rf Market Risk Premium
QUESTION 1
Aspect Answer
The market risk premium is the additional return that
investors expect to earn for investing in the market portfolio
Market Risk Premium (CAPM)
instead of a risk-free asset. It is calculated as the difference
between the expected market return and the risk-free rate.
CAPM Formula Expected Return (Ri) = Rf + βi [(Rm − Rf)]
Market Risk Premium in the
(Rm − Rf) = Market Risk Premium
Formula
Where:
Symbol Meaning
Ri Expected return on an investment
Rf Risk-free rate
βi Beta of the investment
Rm Expected market return
Rm − Rf Market Risk Premium