When Treasury bills yield 7.0% and the expected return on the market is 16%, then the risk premium on an asset is equal to:
A)7.0%.
B)16.0%.
C)9.0% times the asset's Beta.
D)8.0% plus the risk-free rate.

Question

Quizplus · Accepted Answer

The risk premium on an asset is calculated as the expected return on the market minus the risk-free rate, which in this case is 16% - 7% = 9%. This difference is then multiplied by the asset's Beta to account for the asset's relative volatility compared to the market.

When Treasury Bills Yield 7