Which one of the following is the computation of the risk premium for an individual security?
E(R) is the expected return on the security, Rf is the risk-free rate, β is the security's beta, and E(RM) is the expected rate of return on the market.
E(RM) - Rf
E(R) - E(RM)
E(R) - [E(RM) + Rf]
β[E(RM) - Rf]
β[E(R) - Rf]