The risk premium for an individual security is equal to the
A)beta times the market return
B)difference between the required return and the risk free rate
C)weighted average of the individual security betas in a portfolio
D)the security's covariance divided by the variance of the market

Question

Quizplus · Accepted Answer

The risk premium for an individual security is the additional return an investor should expect to receive for taking on the risk of that security. It is calculated as the difference between the required return and the risk-free rate, which represents compensation for the risk taken on by the investor. Therefore, the correct choice is B.

The Risk Premium for an Individual Security Is Equal to the