The market risk premium is computed by:
A) adding the risk-free rate of return to the inflation rate.
B) adding the risk-free rate of return to the market rate of return.
C) subtracting the risk-free rate of return from the inflation rate.
D) subtracting the risk-free rate of return from the market rate of return.
E) multiplying the risk-free rate of return by a beta of 1.0.

Question

Quizplus · Accepted Answer

The market risk premium is the excess return that investors expect to receive from investing in the stock market over the risk-free rate of return. This can be calculated by subtracting the risk-free rate of return from the market rate of return. Choice D is the correct option.

The Market Risk Premium Is Computed By