Asked by Alicia Lankford on May 11, 2024
Verified
Which of the following is the best definition for the concept of risk premium?
A) The excess return required from an investment in a risky asset over a risk-free investment.
B) Market in which security prices reflect available information.
C) A symmetric, bell-shaped frequency distribution that can be defined by its mean and standard deviation.
D) The average compound return earned per year over a multi-year period.
E) The hypothesis is that actual capital markets are efficient.
Risk Premium
The return in excess of the risk-free rate of return that an investment is expected to yield.
Risky Asset
An investment that carries a significant possibility of losing some or all of its value.
Risk-Free Investment
An investment that is considered to be free of credit risk, with the most common examples being government-issued securities.
- Describe and compute the additional risk charge on investments.
Verified Answer
AM
Aaron MhondaMay 12, 2024
Final Answer :
A
Explanation :
The risk premium is the excess return that an investor requires for choosing a risky investment over a risk-free investment, which is accurately described in option A.
Learning Objectives
- Describe and compute the additional risk charge on investments.