Which of the following does not describe market price of risk? A) [E(r_M) - r_f] B) Equilibrium price of risk in the capital market C) Incremental expected return divided by the incremental risk D) Additional expected return that the market demands for an increase in risk

Question

Quizplus · Accepted Answer

The correct notation for market price of risk involves expressions related to risk premiums, risk adjustments, or ratios of excess return to risk, not the formula given in option A. Options B, C, and D all conceptually describe aspects of the market price of risk, focusing on equilibrium, incremental returns relative to risk, and the market's demand for additional return for taking on more risk, respectively.

Which of the Following Does Not Describe Market Price of Risk