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Are investors become more risk averse the market risk premium increases and the security market line becomes steeper?
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What is the difference between discount rate and coupon rate?
For this answer we have to know the six categories of premioum:a. Inflation premium(more risk): high inflation means tha investors will require a higher return in order to invest at a certain project.b. Maturity premium: the longer the duration of a project, the higher the return that investors will require.c. Liquidity premium: the excess return that investors will require in order to invest their capital in a less desirable project on a secondary market.d. Exchange rate risk premium: the excess return that investors will require in order to invest their capital in a foreign financial assets that has volatile exchange rate.e. default risk premium: .... in order to invest in a more (??) project to default companyf. Real rate of interests
What is the premium that reflects the risk associated with changes in interest rates for l long-term security?
Maturity Risk Premium (MPR)
If the inflation premium for a bond goes up the price of the bond?
The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well. The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well.
If the market risk premium were to increase everything else beign equal the value of common stock would do what?
Value of the common stock will go down.As market becomes riskier market participants adjust expected risk premium and start to demand higher returns, consequently they begin to sell stocks as they do not satisfy their newly adjusted expected risk premium. As a result stock price goes down.
Why is the premium on Krugerrands a percentage instead of a fixed amount?
Because the price of gold fluctuates and keeping it at a percentage allows the price to increase or decrease based on demand. For example, if there was a $100 premium on Kugerrands and gold was $2,000 an ounce, such a premium might be reasonable, however, if gold somehow fell to $500 an ounce, such a premium would discourage anyone from buying Kugerrands. When the price of gold increases, more people generally buy gold up to a point, when the price of gold decreases a lot of people will start selling their gold rather than buying it.
What is risk premium?
Risk premium is the compensation investors expect to earn in return for taking risks.
What is expectation premium?
Expectation premium refers to the additional return that investors expect to receive for taking on a certain level of risk. It is essentially the compensation investors demand for holding an asset that may be subject to various uncertainties, such as market fluctuations or economic conditions. The expectation premium is a key consideration for investors when assessing the potential returns from an investment.
Where does security premium come in cash flow statement?
Security premium is part of cash flow from financing activities
What is security premium in management accounting?
Security premium in management accounting is the difference between the nominal value and the selling price of shares.
What is the difference between discount rate and coupon rate?
For this answer we have to know the six categories of premioum:a. Inflation premium(more risk): high inflation means tha investors will require a higher return in order to invest at a certain project.b. Maturity premium: the longer the duration of a project, the higher the return that investors will require.c. Liquidity premium: the excess return that investors will require in order to invest their capital in a less desirable project on a secondary market.d. Exchange rate risk premium: the excess return that investors will require in order to invest their capital in a foreign financial assets that has volatile exchange rate.e. default risk premium: .... in order to invest in a more (??) project to default companyf. Real rate of interests
If forfeiture share is reissued at premium then why security premium is credited?
in case the shares have been issued at a premium and the amount of premium has been received then at the time of forfeiture of such share
Can your employer pay for my medicare premium?
can my employer pay my medicare premium instead of taking it out of social security
Why should the risky stocks be sold at premium?
Actually the riskier the stock the larger the discount rather than a premium. The riskier a stock is the more likely it is that you could loose everything you have invested. It all comes down to the risk reward analysis. Investors must determine if the potential loss of a substantial amount of their investment is worth the reward if things work out in their favor. This determination will be based on each individuals risk tolerance. The riskier the stock becomes the less people will be willing to invest and it begins to effect the stock price resulting in that particular security trading at a discount to the market. Stocks with large potential can sell at a premium in the hopes that the potential will be realized. But, this is entirely different than a premium given based on the amount of risk. As percieved risk becomes greater stock prices decline.
What is security premium reserve?
Securities premium reserve is the amount when securities are issued at premium that is more than their face value.
What would you expect to happen to the spread between yields on commercial paper and Treasury bills if the economy were to enter a steep recession?
The spread will widen. Deterioration of the economy increases credit risk, that is, the likelihood of default. Investors will demand a greater premium on debt securities subject to default risk.
Is Beta the slope of the security market line?
No- the market risk premium is the slope of the Security Market Line (SML).
What is the premium that reflects the risk associated with changes in interest rates for l long-term security?
Maturity Risk Premium (MPR)
