The Market Risk Premium Is Computed by

question 26

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 one.

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Definitions:

Productivity

The measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs.

Average Product

The output per unit of input, such as labor or capital, calculated by dividing total output by the total quantity of the input.

Marginal Product

The additional output produced as a result of using one more unit of a particular input, holding all other inputs constant.

Capital/Labor Ratio

The capital/labor ratio is a measure used in economics to indicate the amount of capital relative to the quantity of labor used in the production process.