Collectibles Corp. has a beta of 3.25 and a standard deviation of returns of 27%. The return on the market portfolio is 13% and the risk free rate is 5%. What is the risk premium on the market

The risk premium on the market is 8%

Explanation:

In solving this example given, we define the method called market risk premium.

Market Risk Premium:

The market risk premium is the difference between the risk free rate and average market return . The market return is often estimated  by the return on some market stock index, known  as the S&P 500 index

Therefore we apply   the capital asset pricing model to compute the market risk premium as follows:

The return of the market portfolio = 13%

The risk free rate =5%

market risk premium = market return - risk free rate

market risk premium = 13% - 5%

market risk premium = 8%

i would say that they would most likely use a e-mail