Question

If U.S. Treasury bills are earning 4 percent and the stock investment you are considering has a potential return of 10 percent, you would be paid a ____ percent return to take the additional risk of investing in the stock.
A. 14

B. 4

C. 10

D. 6

Answer 1

Answer:

Option "D" is the correct answer to the following question.

Step-by-step explanation:

Given:

Return on U.S.Treasury bills = 4%

Potential return on stock investment = 10%

Find:

Additional risk of investing in the stock (Risk premium) = ?

Computation:

⇒ Additional risk of investing in the stock (Risk premium) = Potential return on stock investment - Return on U.S.Treasury bills

⇒  Additional risk of investing in the stock (Risk premium) = 10% - 4%

⇒ Additional risk of investing in the stock (Risk premium) = 6%