When Treasury bills yield 7.0% and the expected return on the market is 16%, then the risk premium on an asset is equal to:
A)9.0%
B)16.0%
C)9.0% times the asset's Beta
D)8.0% plus the risk-free rate

Question

Quizplus · Accepted Answer

The risk premium on an asset is calculated as the market risk premium (expected market return minus risk-free rate) times the asset's Beta. Here, the market risk premium is 9.0% (16% - 7%), so the risk premium on an asset is 9.0% times the asset's Beta.

When Treasury Bills Yield 7