The market has an expected rate of return of 9.8 percent.The long-term government bond is expected to yield 4.5 percent and the U.S.Treasury bill is expected to yield 3.4 percent.The inflation rate is 3.1 percent.What is the market risk premium?
A)2.2 percent
B)3.3 percent
C)5.3 percent
D)6.4 percent
E)6.7 percent

Question

Quizplus · Accepted Answer

The market risk premium is calculated by subtracting the risk-free rate from the expected market return. The U.S. Treasury bill yield is often used as the risk-free rate. Therefore, the market risk premium = 9.8% - 3.4% = 6.4%.

The Market Has an Expected Rate of Return of 9