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

Question

Quizplus · Accepted Answer

The risk premium is the additional return that an investor demands for accepting additional risk. It is computed by subtracting the average return on the U.S. Treasury bill (a low-risk investment) from the average return for the investment in question. This difference represents the additional compensation required for taking on additional risk.

The Risk Premium Is Computed by ______ the Average Return