The risk premium is computed by ________ the average rate of return for an investment.
A)subtracting the inflation rate from
B)adding the inflation rate to
C)subtracting the average return on U.S.Treasury bills from
D)adding the average return on U.S.Treasury bills to
E)subtracting the average return on long-term government bonds from

Question

Quizplus · Accepted Answer

The risk premium is the additional return an investor demands for taking on riskier investments. Therefore, to calculate the risk premium, we need to subtract the average return on U.S. Treasury bills (which are considered risk-free investments) from the average rate of return for the investment in question.

The Risk Premium Is Computed by ________ the Average Rate