The Market Has an Expected Rate of Return of 11

question 91

Multiple Choice

The market has an expected rate of return of 11.4%. The long-term government bond is expected to yield 5.4% and the U.S. Treasury bill is expected to yield 4.6%. The inflation rate is 3.9%. What is the
Market risk premium?

• A) 6.0%
• B) 6.8%
• C) 7.5%
• D) 8.5%
• E) 9.3%

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Definitions:

Marginal Social Cost

The cost to society of producing one additional unit of a good, including both the cost to the producer and any costs to others from that production.

Marginal Social Benefit

The additional benefit to society resulting from the production or consumption of one more unit of a good or service.

Pollution

The contamination of the natural environment by harmful substances or energies, often resulting from human activities.

Efficient

The condition in which resources are allocated in a way that maximizes the net benefit to society or achieves an optimal outcome where no one can be made better off without making someone else worse off.