FIN4801 Assignmnent 2 2026
Due 12 June 2026
Question 1
What is the market risk premium in terms of CAPM? Also, state the formula for
CAPM and highlight the market risk premium in yellow in the formula.
Question 1
The market risk premium in the Capital Asset Pricing Model (CAPM) is the excess return that investors
expect to earn from the market portfolio above the risk‑free rate, i.e. (Rm − Rf ) .
CAPM formula:
Re = Rf + β × (Rm − Rf )
(The market risk premium is highlighted in yellow.)
Question 2
Using CAPM:
Re = Rf + β(Rm − Rf ) = 5% + 1.5 × 6% = 5% + 9% = 14%
b. 14%
Due 12 June 2026
Question 1
What is the market risk premium in terms of CAPM? Also, state the formula for
CAPM and highlight the market risk premium in yellow in the formula.
Question 1
The market risk premium in the Capital Asset Pricing Model (CAPM) is the excess return that investors
expect to earn from the market portfolio above the risk‑free rate, i.e. (Rm − Rf ) .
CAPM formula:
Re = Rf + β × (Rm − Rf )
(The market risk premium is highlighted in yellow.)
Question 2
Using CAPM:
Re = Rf + β(Rm − Rf ) = 5% + 1.5 × 6% = 5% + 9% = 14%
b. 14%
