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5 Cards in this Set
- Front
- Back
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k^ i
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k^ i = expected rate of return on the ith stock
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ki
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ki = required rate of return on the ith stock
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k bar
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k bar = realized return, after the fact
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k RF
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k RF = risk free rate of return
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RPi = (kM - k RF) bi = (RPM ) bi
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RPi = (kM - k RF) bi = (RPM ) bi = risk premium on the ith stock. The stocks risk premium will be less than, equal to, or greater than the premium on an average stock, RPM , depending on whether its beta is less than, equal to or greater than 1.0. If the beta of stock i is equal to the beta of the average stock then risk premium for i us the same as that of the market.
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