The Market Has an Expected Rate of Return of 10

Multiple Choice

The market has an expected rate of return of 10.7 percent. The long-term government bond is expected to yield 5.8 percent and the U.S. Treasury bill is expected to yield 3.9 percent. The inflation rate is 3.6 percent. What is the market risk premium?

A) 6.0 percent
B) 6.8 percent
C) 7.5 percent
D) 8.5 percent
E) 9.3 percent