The expected return on the market portfolio is 12%, and the relevant risk-free rate is 4.2%. What is the equity premium?

7.8%

Explanation:

The expected return on the market portfolio is 12 percent

The risk free rate is 4.2 percent

Therefore the equity premium can be calculated as follow

= expected return - risk free rate

= 12% - 4.2%

= 7.8%

Hence the equity premium is 7.8%

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answer; capital structure decision;