Since the market return represents the expected return on an average stock,that return has a certain amount of risk.As a result,there exists a market risk premium,which is the amount over and above the risk-free rate,which is required to compensate stock investors for assuming an average amount of risk.

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Quizplus · Accepted Answer

This statement is true. The market return does have a certain amount of risk and therefore there exists a market risk premium to compensate investors for the risk they are taking on. The risk-free rate is the rate of return on an investment with no risk, typically the yield on a US Treasury bond.

Since the Market Return Represents the Expected Return on an Average