Want this question answered?
The amount of interest, that you add to a bond or other instrument, to compensate for the risk that the person or company cannot or will not pay you back. You evaluate the risk level using mathematics, statistics, or any other means you find reasonable; then define the risk premium. So if you distribute a lot of bonds, you will statistically win because of the premium. Banks work like this; and many other financial institutions.
maturity risk premium
Banks are currently using 8% market risk premium. Data as of Feb, 2013.
"Risk management" might be considered to be the umbrella topic. Managing risk can be accomplished by risk avoidance, taking measures to reduce or ameliorate risk, or risk transfer. Insurance is the fundamental form of risk transfer because the financial impact of an untoward event (the risk) is transferred to a third party (the insurer) in return for the payment of a premium.
Financial Risk Manager was created in 1997.
When one has market risk premium he/she is willing to take an financial risk. The risk premium is how much value stocks should return over a risk-free investment. Stocks are considered a higher financial risk (and possible a faster gain) opposed to, for instance, bonds.
The market risk premium is measured by the market return less risk-free rate. You can calculate the market risk premium as market risk premium is equal to the expected return of the market minus the risk-free rate.
There is a calculator on the Internet at the site referenced below.
Risk premium = Company's risk (standard deviation of the historical stock returns of the market as a whole) - Risk-free rate of return (standard deviation of the historical treasury bonds' returns) - Inflation
The amount of interest, that you add to a bond or other instrument, to compensate for the risk that the person or company cannot or will not pay you back. You evaluate the risk level using mathematics, statistics, or any other means you find reasonable; then define the risk premium. So if you distribute a lot of bonds, you will statistically win because of the premium. Banks work like this; and many other financial institutions.
Risk is, by definition, the likelihood or non-likelihood of a financial loss occuring. The financial loss can be in terms of the loss of money, damage to property, or any other occurrence that has a financial impact upon the business. Insuring is the process of transferring the risk of loss from the entity that bears the risk to an insurer. The insurer agrees to assume the risk in return for a premium. The terms and extent of the transfer of risk is set forth in the insurance contract.
maturity risk premium
Risk premium is the compensation investors expect to earn in return for taking risks.
It is the return you are expected to make by putting your money into Equity(stocks) Over what the current Risk free rate is. For example the Risk free rate (30 YR T-Bonds) is at 3.8% right now, and I think the S&P 500 is going to return around 8%, so 8 - 3.8 = 4.2% Market Risk Premium. It depends on how you calculate future expected returns and all firms calculate it in different ways.
Insurance is defined as financial restitution in the case of an accident or claim to put you back in the same financial position you were in before the accident. insurance risks are things like where you live .. and how old you are, or things like if you have a burgalar alarm.. or if you have a flood every year.. that's a bit insurance risk...
The amount of interest, that you add to a bond or other instrument, to compensate for the risk that the person or company cannot or will not pay you back. You evaluate the risk level using mathematics, statistics, or any other means you find reasonable; then define the risk premium. So if you distribute a lot of bonds, you will statistically win because of the premium. Banks work like this; and many other financial institutions.
Banks are currently using 8% market risk premium. Data as of Feb, 2013.