What is the estimate of risk-premium on the market that should be used in the CAPM?

The estimated risk premium to be used in the CAPM should be the excess of the market portfolio return over the historical risk-free interest rate. During the time period that this potential investment was being considered, Ameritrade had a market cap well over $1B, which categorizes the company as a larte-cap company. Therefore, the comparable market portfolio for investing in Ameritrade would be the large-cap or large company stocks using 1950-1996 date (using data back to 1929 would not provide a good reference as there would not have been comparable companies in the market portfolio during that time period). Based on Exhibit 3, the market portfolio for this market would be 14%. After deducting the historical risk-free rate of 6.4% based on the intermediate bond market rate also found in Exhibit 3, the risk premium would be 7.6%