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. If the risk - free rate of return is 5 % and the average return on the market is 1 2 % , what

.

If the risk

-

free rate of return is

5 %

and the average return on the market is

12 %,

what is the risk premium charged by the market? What happens to the risk premium if inflation increases? If investors became more risk averse, would the risk premium rise or fall?

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