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:

Self-Serving Bias

A common tendency to attribute one's successes to personal characteristics and failures to external factors.

Situational Attribution

The process of attributing a person's behavior to external or environmental factors, rather than to internal dispositions.

Self-Fulfilling Prophecy

A belief or expectation that influences a person to act in ways that cause the belief to become true.

Human Nature

The innate characteristics, including ways of thinking, feeling, and acting, which all human beings share.