Investments
4. Expected Return on Stock = Risk- Free Return + (Beta *Market Risk Premium)
CAMP Formula
ERi =Rf + Bi(ERm –Rf)
Where:
ERi = Expected Return on Stock
Rf = Risk- Free Return
Bi = Beta
(ERm –Rf)= Market Risk Premium
Market Risk Premium = Expected Market Return – Risk Free Rate of return
Substituting the value from excel provided
Dominos:
ERi = 1 + 0.377224(8-1) = 3.640568
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