If the future return on a security is known with absolute certainty, then the risk premium on that security should be equal to:
A)zero.
B)the risk-free rate.
C)the market rate.
D)the market rate minus the risk-free rate.
E)the risk-free rate plus one-half the market rate.

Question

Quizplus · Accepted Answer

If the future return on a security is known with absolute certainty, then there is no risk involved in investing in that security. Therefore, investors would not require any premium for taking on risk, and the risk premium would be zero.

If the Future Return on a Security Is Known with Absolute