The market risk premium is computed by:
A) Adding the risk-free rate of return to the inﬂation rate.
B) Adding the risk-free rate of return to the market rate of return.
C) Subtracting the risk-free rate of return from the inﬂation rate.
D) Subtracting the risk-free rate of return from the market rate of return.
E) Multiplying the risk-free rate of return by a beta of 1.0.

Question

Quizplus · Accepted Answer

The market risk premium is the additional return that an investor expects to receive from investing in a risky asset, such as stocks, over and above the risk-free rate of return. It is calculated by subtracting the risk-free rate of return from the market rate of return. Therefore, the correct answer is D.

The Market Risk Premium Is Computed By