Which of the following is the best definition of market risk premium?
A) Percentage of a portfolio's total value in a particular asset.
B) Group of assets such as stocks and bonds held by an investor.
C) The difference between the return on a risky investment and a risk-free investment
D) Return on a risky asset expected in the future.
E) Equation of the SML showing the relationship between expected return and beta.

Question

Quizplus · Accepted Answer

The market risk premium is defined as the difference between the expected return on a market portfolio of investments (risky investment) and the risk-free rate of return. It represents the extra return investors expect to earn for choosing to invest in a risky asset rather than a risk-free asset.

Which of the Following Is the Best Definition of Market