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If an investor moves money from the risk-free asset into the stock market, they should expect to earn a return in excess of the risk-free rate, what is called an equity riskpremium. Investments are exposed to two types of risk: systematic and unsystematic. E(r) = Rf + ??(Rm
MarketRisk-Free Rate: Beta calculations often involve comparing the asset’s returns to a risk-free rate, such as the yield on a government bond with a similar maturity. The risk-free rate serves as the baseline return with no marketrisk and provides context for assessing an asset’s riskpremium.
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