Since the market return represents the expected return on an average stock, the market return reflects a certain amount of risk.As a result, there exists a market risk premium, which is the amount over and above the risk-free rate, that is required to compensate stock investors for assuming an average amount of risk.

Question

Quizplus · Accepted Answer

This statement is correct. The market return is considered a measure of risk and as such, there is a premium required by investors to compensate for taking on risk. This premium is known as the market risk premium.

Since the Market Return Represents the Expected Return on an Average