Vidyalelo
Commerce · Q800

Financial Management

Graduate and Post Graduate · Commerce · question 800

Q800

Market required return is subtracted from risk free rate which is used to calculate

A.
quoted risk premium
B.
market risk premium
Answer
C.
portfolio risk premium
D.
unquoted risk premium

Answer: Option B

Solution

Answer: Option B
Solution:
Market required return is subtracted from risk free rate which is used to calculate market risk premium. The market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. The market risk premium is equal to the slope of the security market line (SML), a graphical representation of the capital asset pricing model (CAPM).