Risk premium is the additional return that an investor demands in order to invest in a risky asset compared to a risk-free asset. It is a payment differential that compensates the investor for bearing the risk. It is calculated as the difference between the expected return on a risky asset and the risk-free rate.

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Risk Premium Is

Question 35

Multiple Choice

Risk premium is

A) a payment differential necessary to compensate the investor for having to bear a risk.
B) the additional payment paid by bonds issued by the federal government.
C) the tendency of some investors to incur in high risk.
D) the benefits of buying from a trustworthy institution.

Correct Answer: