The correct answer is: D. market risk premium
The market risk premium is the additional return that investors expect to earn on a risky asset in excess of 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 market risk premium is important because it is used to calculate the expected return on a risky asset. The expected return on a risky asset is equal to the risk-free rate plus the market risk premium multiplied by the beta of the asset. The beta of an asset is a measure of its volatility relative to the market portfolio.
Country risk is the risk of investing in a country due to political, economic, or social instability. Diversifiable risk is the risk that can be eliminated by holding a diversified portfolio of assets. Equity risk premium is the additional return that investors expect to earn on a risky asset in excess of the return on a risk-free asset.