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What is risk premium?

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โˆ™ 2013-12-28 23:52:08

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Risk premium is the compensation investors expect to earn in return for taking risks.

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โˆ™ 2013-12-28 23:52:08
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Related questions

The market risk premium is measured by?

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.


What is the premium added as a compensation for the risk that an investor will not get paid in full?

maturity risk premium


What is the current market risk premium?

Banks are currently using 8% market risk premium. Data as of Feb, 2013.


What does it mean when one has market risk premium?

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.


What is the premium that reflects the risk associated with changes in interest rates for l long-term security?

Maturity Risk Premium (MPR)


Is it possible for the risk premium to be negative?

yes


If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?

If the required rate of return is 11 the risk free rate is 7 and the market risk premium is 4 If the market risk premium increased to 6 percent what would happen to the stocks required rate of return?


Does a T-Bond have a default risk premium?

yes


How do you calculate market risk premium for a firm?

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


Is there a greater risk of getting red ring of doom from an old xbox360 premium then the new version with HDMI ie xbox360 premium pro?

yes it is a bigger risk.


The amount by which the required discount rate exceeds the risk-free rate is called what?

Risk premium.


Why would the cost of debt increase if the risk-free rate increase?

The rate of return on a security, in this case the debt, is defined by rd = rRF + Liquidity Premium + Maturity Risk Premium + Default Risk Premium Thus increasing the risk free rate (rRf) should increase the cost of debt. Hopefully that answers your question...

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