The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?
Value of the common stock will go down.As market becomes riskier market participants adjust expected risk premium and start to demand higher returns, consequently they begin to sell stocks as they do not satisfy their newly adjusted expected risk premium. As a result stock price goes down.
5.216 according to CAPM
RoR = Rf + beta x Rp where, RoR = Required Rate of return Rf = Risk free Rate Rp = Risk Premium so Ror - 19%
This should be correct in a perfect market. Not true usually as assets are often mis priced. Expected return is the return/discount that market is using to get the value of the asset while required return is the discount / return that gets you the true intrinsic value of an asset
Banks are currently using 8% market risk premium. Data as of Feb, 2013.
Require Rate of Return is formulated as: Riskfree Rate + Beta(Risk Premium) Required Rate of Return = 4.25 + 1.4 (5.50) = 11.95%
As of July 2014, the market cap for Dow 30 Premium (DPD) is $194,882,216.61.
As of July 2014, the market cap for Dow 30 Premium (DPO) is $385,818,522.05.
the beta is 1 the beta is 1