The Market Risk Premium Is Computed By

question 41

Multiple Choice

The market risk premium is computed by:

• A) Adding the risk-free rate of return to the inflation rate.
• B) Adding the risk-free rate of return to the market rate of return.
• C) Subtracting the risk-free rate of return from the inflation rate.
• D) Subtracting the risk-free rate of return from the market rate of return.
• E) Multiplying the risk-free rate of return by a beta of 1.0.

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Definitions:

Gross Profit

The difference between revenue and the cost of goods sold, indicating how efficiently a company produces goods/services at a profit.

Operating Income

Earnings before interest and taxes (EBIT), representing the profit a company generates from its core operations.

Income Tax Expense

The amount of money that an individual or corporation owes to the government based on their taxable income.

Effective Income Tax Rate

The average rate at which an individual or corporation is taxed, calculated by dividing the total tax expense by the taxable income.