The annual return on the S&P 500 Index was 18.1 percent. The annual T-bill yield during the same period was 6.2 percent. What was the market risk premium during that year?
A) 6.2 percent
B) 11.9 percent
C) 18.1 percent
D) 24.3 percent

Question

Quizplus · Accepted Answer

The market risk premium is calculated as the difference between the return on the market (in this case, the S&P 500 Index) and the risk-free rate (the T-bill yield). Thus, 18.1% - 6.2% = 11.9%.

The Annual Return on the S&P 500 Index Was 18