At a minimum,which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset?
I.asset's standard deviation
II.asset's beta
III.risk-free rate of return
IV.market risk premium
A)I and III only
B)II and IV only
C)III and IV only
D)I, III, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

To estimate the amount of additional reward for purchasing a risky asset instead of a risk-free asset, we would need to know the asset's beta (as it measures the risk of the asset compared to the market) and the market risk premium (the excess return that investors demand for taking on the risk of investing in the stock market over the risk-free rate). The standard deviation would be useful in determining the overall volatility of the asset, but it is not essential for this specific calculation. The risk-free rate of return is important as a benchmark for determining the additional reward received for taking on risk. Therefore, the best choice would be to know the asset's beta and the market risk premium only, which is Option B - II and IV only.

At a Minimum,which of the Following Would You Need to Know