At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset?
I. Asset's standard deviation
II. Asset's beta
III. Risk-free rate of return
IV. Market risk premium
A) I and III only
B) II and IV only
C) III and IV only
D) I, III, and IV only
E) I, II, III, and IV

Question

Quizplus · Accepted Answer

To estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset, you need to know the asset's beta (systematic risk) and the market risk premium (the difference between the expected return on the market and the risk-free rate). The asset's standard deviation (total risk) and the risk-free rate of return will provide additional information, but they are not necessary to estimate the additional reward.

At a Minimum, Which of the Following Would You Need