To calculate the expected risk premium on a stock, one must subtract the d) risk free rate from the stock's expected return.
In the field of business, the expected risk premium can be described as the revenue that can be generated from investing in a product or asset.
To calculate the expected risk premium for a particular stock, one must exclude the risk-free rate from the expected return. The expected return is the money that one expects to get back from investing in a particular asset.
The expected risk makes an investor believe to be compensated for the risk that he has taken by investing in a particular asset. Hence, in order to calculate the expected risk premium, a business needs to exclude the free rate after the exclusion of risk from the expected rate of return.
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