Question

36. 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 one.

Answer 1

Market Risk premium is computed by:

d) subtracting the risk-free rate of return from the market rate of return.

[Market Risk premium is the difference between the expected return on a market portfolio and the risk-free rate]