The risk premium is the
A)Interest rate paid to savers.
B)Interest rate charged to borrowers.
C)Difference in rates of return on safe and risky investments.
D)Interest rate divided by the expected value.

Question

Quizplus · Accepted Answer

The risk premium is the additional return an investor requires in order to invest in a risky asset compared to a risk-free asset. It is the difference between the expected rate of return on a risky investment and the risk-free rate of return. Therefore, the correct option is C, which states that it is the difference in rates of return on safe and risky investments.

The Risk Premium Is the