The difference between average annual returns on common stocks and returns on long-term government bonds is called a:___________

Question

Drupady [299]

3 years ago

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The difference between average annual returns on common stocks and returns on long-term government bonds is called a:___________

_

Business

1 answer:

Anestetic [448] · Answer 1 · 2022-03-30T03:43:14+03:00

Answer:

Market risk premium.

Explanation:

The difference between average annual returns on common stocks and returns on long-term government bonds is called a market risk premium.

Basically, market risk premium is typically determined by taking the slope of a security market line (SML); which is used by economist as a graphical representation of the capital asset pricing model (CAPM).

Market premium risk is used to determine the quantitative measure of the extra return demanded by market participants for the increased risk.