If the risk premium on a commercial bank rises, so will the required rate of return by investors who invest in the bank.

Question

Quizplus · Accepted Answer

The risk premium is the extra return above the risk-free rate that investors require to compensate them for the risk of investing in a particular asset. If the risk premium on a commercial bank rises, it indicates that investors perceive higher risk associated with the bank. Consequently, investors will demand a higher required rate of return to compensate for this increased risk.

If the Risk Premium on a Commercial Bank Rises, So