Risk Premium The annual return on the S&P 500 Index was 18.1 percent.The annual T-bill yield during the same period was 6.2 percent.What was the market risk premium during that year?
A)6.2 percent
B)11.9 percent
C)18.1 percent
D)24.3 percent

Question

Quizplus · Accepted Answer

Market risk premium is calculated as the difference between the return on the market (S&P 500) and the risk-free rate (T-bill yield). Therefore, the market risk premium during that year is:
Market risk premium = 18.1% - 6.2% = 11.9%

Risk Premium the Annual Return on the S&P 500 Index