The risk premium is defined as the rate of return on:
A)a risky asset minus the risk-free rate.
B)the overall market.
C)a U.S. Treasury bill.
D)a risky asset minus the inflation rate.
E)a riskless investment.

Question

Quizplus · Accepted Answer

The risk premium is the extra return earned by investing in a risky asset compared to a risk-free asset, such as a U.S. Treasury bill. It is calculated as the difference between the rate of return on a risky asset and the risk-free rate. Therefore, choice A is the correct answer.

The Risk Premium Is Defined as the Rate of Return