The Market Risk Premium Is Computed By

question 79

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:

Predetermined Overhead Rate

A rate calculated before a period begins, used to apply manufacturing overhead costs to products based on a specified activity base.

Variable Overhead

Costs that fluctuate with the level of production or service delivery, such as utilities or raw materials.

Total Overhead Variance

The difference between the actual overhead incurred and the standard overhead allocated for the actual production achieved.

Labor Price Variance

The difference between the actual cost of direct labor and the standard cost, reflecting the variance in wages paid.