The risk premium that is offered on common stock is equal to the:
A)Expected return on the stock
B)Real rate of return on the stock
C)Excess of expected return over a risk-free return
D)Expected return on the S&P 500 index

Question

Quizplus · Accepted Answer

The risk premium offered on common stock is the excess return over a risk-free rate that investors demand as compensation for taking on the additional risk associated with investing in stocks compared to risk-free securities. This excess return is calculated as the expected return on the stock minus the risk-free rate. Therefore, choice C is the correct answer.

The Risk Premium That Is Offered on Common Stock Is