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Question
You own three securities. Security A has an expected return of 11 percent as compared to 14 percent for Security B and 9 percent for Security C. The expected inflation rate is 4 percent and the nominal risk-free rate is 5 percent. Which one of the following statements is correct?A. There is no risk premium on Security C.
B. The risk premium on Security A exceeds that of Security B.
C. Security B has a risk premium that is 50 percent greater than Security A's risk premium.
D. The risk premium on Security C is 5 percent.
E. All three securities have the same expected risk premium.
Answer
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