The required rate of return on any security consists of a(n) ____.

Question

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The required rate of return on any security consists of a risk-free rate plus a risk premium. The risk-free rate is the return an investor would expect from a risk-free investment, such as U.S. Treasury bills, and the risk premium is the additional return demanded by the investor for taking on the risk of the investment. The other options either include irrelevant factors (inflation rate, marketability premium) or combine them in an incorrect way (expected inflation plus risk premium).

The Required Rate of Return on Any Security Consists of A(n)