Suppose that the risk-free rate is 3% and that the market risk premium is 5%. Round your answers to one decimal place. What is the required return on the market?

The required return on the market is 8%

Explanation:

Market required rate is the sum of the risk free rate and market risk premium.

Risk free rate is a rate on a treasury stock or government bond because these securities have very low risk or no risk at all as these are backed by government entities.

Market risk premium is the premium paid against the risk to invest in a specific market which is additional to the risk free rate. Different markets have different risk levels. The markets having higher rism will pay higher premium and markets with lower will pay lower risk premium.

The required rreturn on the market can be calculated as follow

Market required return = Risk free rate + Market risk premium

Placing values in the formula

Market required return = 3% + 5%

Market required return = 8%

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