Since the market return represents the return on an average stock, that return carries risk with it. As a result, there exists a market risk premium which is the amount over and above the risk-free rate that is required to compensate an investor for assuming an average amount of risk.

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Quizplus · Accepted Answer

This statement is true. The market risk premium is the additional return required by investors to take on the risk associated with investing in the stock market. It is calculated as the difference between the market return (which includes risk) and the risk-free rate (which has no risk).

Since the Market Return Represents the Return on an Average