The risk premium is the difference between the average return on a security and the average return for:
A)long-term Government of Canada bonds.
B)a portfolio of securities with similar risk.
C)a broad-based market portfolio like the S&P 500 index.
D)Treasury bills.
E)corporate bonds.

Question

Quizplus · Accepted Answer

The risk premium is the additional return that investors require for taking on additional risk. Treasury bills are considered risk-free because they are backed by the government, meaning they have no default risk. As a result, the risk premium is the difference between the average return on a security and the return on risk-free securities such as treasury bills.

The Risk Premium Is the Difference Between the Average Return