The expected risk premium on a security is computed by
A) Subtracting the security's expected return from the risk-free rate
B) Subtracting the expected market return from the security's expected return
C) Subtracting the risk-free rate from the security's expected return
D) Adding the security's expected return to the risk-free rate
E) Adding the security's expected return to the expected return on the market

Question

Quizplus · Accepted Answer

The expected risk premium on a security is the difference between the expected return on the security and the risk-free rate. This captures the additional compensation an investor expects to receive for taking on the risk of the security, relative to a risk-free asset.

The Expected Risk Premium on a Security Is Computed by