The T-bill rate is 6 percent and the market risk premium is 8 percent, the expected return is 9%, the beta is .3 what is the specific benchmark?
To determine the specific benchmark given the T-bill rate, market risk premium, expected return, and beta, we need to use the Capital Asset Pricing Model (CAPM) formula.
The CAPM formula is as follows:
Expected Return = Risk-Free Rate + Beta x Market Risk Premium
Let's plug in the values given:
Expected Return = 9%
Risk-Free Rate (T-bill rate) = 6%
Market Risk Premium = 8%
Beta = 0.3
We can rearrange the CAPM formula to isolate the market risk premium:
Market Risk Premium = (Expected Return - Risk-Free Rate) / Beta
Now let's calculate the market risk premium:
Market Risk Premium = (9% - 6%) / 0.3
Market Risk Premium = 3% / 0.3
Market Risk Premium = 10%
Based on this calculation, the specific benchmark is expected to have a market risk premium of 10%.