When Treasury bills yield 7% and the expected return on the market is 16%,then the risk premium on an asset is equal to:
A) 9%.
B) 16%.
C) 9% times the asset's beta.
D) 9% 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% (16% - 7%).

When Treasury Bills Yield 7% and the Expected Return on the Market