[amp_mcq option1=”quoted risk premium” option2=”market risk premium” option3=”portfolio risk premium” option4=”unquoted risk premium” correct=”option2″]
The correct answer is: B. market risk premium
The market risk premium is the additional return that investors demand for investing in risky assets over and above the return on a risk-free asset. It is calculated by subtracting the risk-free rate from the expected return on the market portfolio.
The quoted risk premium is the difference between the expected return on a risky asset and the risk-free rate. It is calculated by looking at the historical returns of the asset and the risk-free rate.
The portfolio risk premium is the additional return that investors demand for investing in a particular portfolio of assets over and above the return on a risk-free asset. It is calculated by subtracting the risk-free rate from the expected return on the portfolio.
The unquoted risk premium is the additional return that investors demand for investing in a particular asset that is not traded on an exchange. It is calculated by looking at the historical returns of the asset and the risk-free rate.
The market risk premium is the most commonly used measure of risk premium. It is used to calculate the expected return on a risky asset, and it is also used to calculate the cost of capital for a company.