CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

In a well-diversified market portfolio, the required rate of return on a security is composed of all of the following EXCEPT ______.

I. risk exposure
II. inflation premium
III. real risk-free rate of return
IV. diversifiable risk premium
A. II and IV
B. I and III
C. IV only
Explanation: The risk premium on a security is based on its systematic risk, not the diversifiable risk, in a well-diversified investor's portfolio.

User Contributed Comments 5

User Comment
danlan Diversifiable risk is individual risk, which does not increase return.
iceluke everything said by danlan
ggc7x016 How is Inflation premium accounted for in the extected return ?
jpducros yes, what about inflation ?
flpe1047 Inflation is included in the risk free rate. Nominal risk free rate = real risk free rate + inflation premium.
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