If the future return on a security is known with certainty, then the risk premium on that security should be equal to
A) Zero
B) The risk-free rate
C) The market rate
D) The market rate minus the risk-free rate
E) The risk-free rate plus one-half of the market rate

Question

Quizplus · Accepted Answer

If the future return on a security is known with certainty, then the risk associated with that security is eliminated, and therefore there is no need for a risk premium.

If the Future Return on a Security Is Known with Certainty