Market Risk Premium The difference between the rate of return of a specific asse
ID: 2786920 • Letter: M
Question
Market Risk Premium
The difference between the rate of return of a specific asset and the rate of return of a less risky asset.
Risk-averse investors dislike risk and require higher rates of return as an inducement to buy riskier assets.
The excess return required from an investment in a well-diversified portfolio over that required from a risk-free investment.
None of the above.
The excess return required from an investment in a risky asset over that required from a risk-free investment.
The difference between the rate of return of a specific asset and the rate of return of a less risky asset.
Risk-averse investors dislike risk and require higher rates of return as an inducement to buy riskier assets.
The excess return required from an investment in a well-diversified portfolio over that required from a risk-free investment.
None of the above.
The excess return required from an investment in a risky asset over that required from a risk-free investment.
Explanation / Answer
Market Risk Premium is the excess return required from an investment in a risky asset over that required from a risk-free investment.
Market Risk Premium = beta * (Market return - risk free rate)