To calculate the expected risk premium on a stock, one must subtract the Inflation rate from the stock’s expected return.
From the question, we have the following parameters that can be used in our computation:
Mathematically, the relationship between the expected risk premium and the stock's expected return is represented as follows
Expected risk premium = Stock's expected return - Inflation rate
This means that the Inflation rate must be subtracted from the stock’s expected return to calculate the expected risk premium
Hence, the statement that completes the blank is Inflation rate.
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