The excess return earned by an asset that has a beta of 1.0 over that earned...
The excess return earned by an asset that has a beta of 1.0 over that earned by a risk-free asset is referred to as the: Select one: a. market rate of return. b. real rate of return. c. systematic return. d. total return. e. market risk premium.
Homework Answers
e . market risk premium.
as per CAPM :
required return = risk free rate + beta* (market risk premium)
here,
since beta is 1
=> required return = risk free rate + 1*(market risk premium)
=>market risk premium = required return - risk free rate.
therefore,
market risk premium is the excess return earned by an asset that has a beta of 1.0 over that earned by a risk free asset.
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