Estimation of beta and Market risk premium for United Fund
The returns on the market, the returns on United Fund (UF), the riskfree rate, and the required return on the United Fund are shown below.
Year

Market

UF

2003

9%

14%

2004

11%

16%

2005

155

22%

2006

5%

7%

2007

1%

2%

r_{RF}: 7.00%
r_{United}: 15.00%
Assuming the market is in equilibrium and which beta can be estimated with historical data,
1. Estimate beta of United fund
2. Estimate the market risk premium
3. Illustrate what is the required return on the market, r_{M}?