The required risk of return on stocks or bonds can be calculated using which formula?

The required rate of return on stocks or bonds is calculated using the formula that combines the risk-free rate with a risk premium, reflecting the additional return investors expect for taking on additional risk. This approach recognizes that the risk-free rate represents the return on a secure investment, such as government bonds, while the risk premium accounts for the uncertainty and potential volatility associated with investing in stocks or riskier bonds.

By adding the risk premium to the risk-free rate, the formula accurately reflects the investor’s necessary compensation for the risk taken. This is a fundamental principle in finance, as investors typically require higher returns for bearing higher risk. Options involving subtraction or multiplication of the risk premium do not adequately represent the relationship between risk and return, and division is not a relevant operation in this context. Therefore, the given choice reflects the standard way to assess the required return based on prevailing market risks, making it the correct approach.