The difference between the return on the market portfolio of assets and the risk-free rate of return represents the premium the investor must receive for taking the average amount of risk associated with holding the market portfolio of assets.

Question

Quizplus · Accepted Answer

This statement is true. The market portfolio represents the average risk of the market and the difference between its return and the risk-free rate of return represents the additional return investors expect for taking on the market risk. This is known as the market risk premium.

The Difference Between the Return on the Market Portfolio of Assets