Hi, could someone please explain this :
“In the CAPM, the market risk premium is the difference between the return on the market and the risk-free rate, which is the same as the return in excess of the market return.”
How is the risk premium equal to the return in excess of the market return? Wouldn’t it be the return in excess of the risk-free rate? When we say that the alpha of the market return is zero, then shouldn’t the market excess return be equal to zero?
So my question is : Why and how is the market risk premium equal to the excess market return?
Thank you!