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**CFA Practice Question**

Given that the risk premium on the market is 14%, and the beta on an asset is 0, what would be the risk premium on the asset?

A. 0%

B. 2%

C. Not enough information

**Explanation:**In order to obtain an asset's risk premium, one should multiply the market risk premium by the asset's beta. In this example, this would yield 14% x 0 = 0. The beta of 0 on the asset signifies that it has no systematic risk (which is the only measure of risk that is relevant, according to the capital market theorem). A riskless asset will not have a risk premium.

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**User Contributed Comments**
4

User |
Comment |
---|---|

ontrack |
tricky. i thought we cant get the rate as we dont know the risk free rate. |

takor |
when beta is 0, the SML intercepts the E(Ri) axis at the RFR, at which point E(Ri)=RFR; risk premium=E(Ri)-RFR=0 |

uviolet |
ontrack, the question asks for risk premium which is beta * market risk premium. |

GBolt93 |
yeah, ontrack to be clear we don't need the rfr as we're given market premium, not market return. If beta was 0.5 the risk premium on the asset would be 14x.5=7% |