Question
What are the two components of the market risk premium?
Multiple select question.
The risk-free rate
Beta
The expected return on the market
The default spread
Multiple select question.
The risk-free rate
Beta
The expected return on the market
The default spread
Answers
GPT-4o mini
The two components of the market risk premium are:
1. **The expected return on the market** - This represents the anticipated return investors expect to earn from the market as a whole.
2. **The risk-free rate** - This is the return on an investment with no risk of financial loss, typically represented by government bonds like U.S. Treasury bonds.
The market risk premium itself is calculated as the difference between the expected return on the market and the risk-free rate.
So, the correct answers from the options provided would be **The risk-free rate** and **The expected return on the market**.
1. **The expected return on the market** - This represents the anticipated return investors expect to earn from the market as a whole.
2. **The risk-free rate** - This is the return on an investment with no risk of financial loss, typically represented by government bonds like U.S. Treasury bonds.
The market risk premium itself is calculated as the difference between the expected return on the market and the risk-free rate.
So, the correct answers from the options provided would be **The risk-free rate** and **The expected return on the market**.