In the formula E(ri) = rf + fi E(rm - rf), what does the term E(rm - rf) represent?
A) The change in share value
B) The average risk premium for shares
C) The risk free rate
D) The increase in share value

Question

Quizplus · Accepted Answer

E(rm - rf) represents the average risk premium for shares. It is the excess return that investors expect to receive for holding a risky asset like shares, over and above the risk-free rate.

In the Formula E(ri) = Rf + Fi E(rm -