Answer:
The risk premium = 6.765%
Explanation:
Required rate of return (r) on Cachapa International's stock = 0.045 + 1.23 * (0.1 - 0.045) = 0.11265 or 11.265%
The risk premium on a stock is the additional return that is expected from the stock based on the risks it carry.
It is simply calculated by deducting the risk free rate from the required rate of return (r) of the stock
Thus, the risk premium on Cachapa's stock is = 11.265 - 4.5 = 6.765%
