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:
A) Market rate of return.
B) Market risk premium.
C) Systematic return.
D) Total return.
E) Real rate of return.

Question

Quizplus · Accepted Answer

The market risk premium is the excess return that investing in the stock market provides over a risk-free rate. This is the additional return expected from holding a risky market portfolio instead of risk-free assets. An asset with a beta of 1.0 is expected to move with the market, and thus its excess return over the risk-free rate is indeed the market risk premium.

The Excess Return Earned by an Asset That Has a Beta