Which of the following is the best definition for the concept of risk premium?

Multiple Choice

• The excess return required from an investment in a risky asset over a risk-free investment.

• Market in which security prices reflect available information.

• A symmetric, bell-shaped frequency distribution that can be defined by its mean and standard deviation.

• The average compound return earned per year over a multi-year period.

• The hypothesis is that actual capital markets are efficient.